Why Home Partners Of America Suits Blackstone SFR Re-entry
In its $6 billion acquisition of HPA, Blackstone adds a "doing-well-by-doing-good" dimension to a shrewd, opportunistic position in the hot single-family-rental market.
Wall Street investment giant Blackstone Group is a big reason why single-family rental is the real estate asset class it has become. In the early wake of The Great Recession, Blackstone culled tens of thousands of distressed properties, rolling them into the Invitation Homes portfolio.
Voila, an investment tier that had never before amounted to much that many regarded as too unwieldy to last as a sustainable, cohesive business model.
Strategists at the time penciled a workable investment, property management, cash-flow, and exit model that could leverage low-cost of entry, strong data, and a whiplashed cohort of renters-by-necessity stemming from all the displacement and dislocation coming out of the foreclosure crisis in the latter part of the first decade of the 2000s.
Little would they have suspected at the time that the "asset class" masked something larger going on with American housing preferences and options.
It took a for-sale affordability crisis, a sustained surge in rent-by-choice preferences among Millennials dragging their feet on family formation as well as among Baby Boom downsizers, and, finally, the Covid-19 pandemic to peel back a realization that has transformed the housing landscape.
People want to live in single-family detached homes that they rent, new or not, in intentional horizontal planned communities, or in scattered lots in older neighborhoods; they prefer single-family rental to ownership and to renting in vertical apartment communities.
They just plain choose SFR as a preference that yields flexibility, more carefree maintenance, less local tax, etc.
And some, it turns out, want to live in single-family-rental homes that they may want to buy, and in that case, want their rent payments to tip toward homeownership journey.
This is where Blackstone's $6 billion deal to acquire Home Partners of America and its portfolio of 17,000 homes it rents to people who may want to buy them comes in.
Remember, financial and capital investment companies, especially in a business environment increasingly marked by ESG – environment, social, and governance stakeholder capitalism – positions and commitments, could use some reputational burnishing, given that their presence as residential real estate buyers has become conspicuous.
Through an investment fund named Blackstone Real Estate Income Trust, which primarily raises money from small investors and tends to hold assets longer than the firm’s opportunistic funds.
That strategy, Grant notes, signals Blackstone strategists' conviction in the fundamental strength of residential real estate's cycle, but of something else, which is a "doing well by doing good motivation" at the heart of HPA's model.
As we've written here in Spring 2019, when HPA was still evolving:
HPA lowers the barriers to change as well, however, the way it approaches doing that is by working to elevate--gradually, methodically, and with incentives--the motivation, the financial wherewithal, and the personal efficacy of people at the household level. The program, over time, transforms people who would not qualify for a mortgage loan into ones who do. Since its launch, HPA has purchased over 12,000 homes in 40 metro markets and 20 states nationwide for a total investment of over $3.5B. Over 800 HPA resident households have exercised their “right to purchase” and have successfully purchased their home from HPA utilizing the lender of their choice. This equates to approximately 6.6% of total HPA purchases converting into home ownership. HPA has over 65,000 real estate agents nationwide registered in its network.
By entering a sweet-spot of SFR that has a strong housing affordability DNA, Blackstone can distinguish its position as pro-affordability with a business model in Home Partners that raises its customers' aspirations and abilities by journey-mapping them into a homeownership-level credit-worthiness, with training and incentives.
Not your standard-issue REIT model, which makes it a smart position in a market where financial investor buyers of land, houses, and companies in the residential space is starting to gain some unwanted attention.