Blackstone Prices Its Housing Fixer-Upper To Move

Blackstone is pricing its American housing fixer-upper to move. The buyout giant is pricing Invitation Homes, its single-family home-rental company, smack in line with rivals notwithstanding the superior fundamentals of its assets. Investors looking for a quick flip should be wary, though. The fledgling home-rental sector faces some significant headwinds.

Steve Schwarzman’s firm aggressively capitalized on the opportunity created by the housing bust. Since 2012 Blackstone has spent more than $10 billion to acquire homes and gussy them up. Invitation boasts an industry-leading 48,431 residences in 13 metropolitan areas. The California and Florida markets, where the real-estate investment trust generates more than half of its revenue, have rebounded sharply from the depths of the crisis, and affordability concerns have made renting attractive.

Average rents on homes owned for more than 12 months stood at $1,603 a month in the first nine months of 2016, roughly $100 more than the next two players, American Homes 4 Rent and Colony Starwood Homes, charged. Invitation has been increasing rents by nearly 6 percent a year, faster than rivals. Invitation also has kept repair and maintenance spending in check relative to peers, suggesting that scale really does work in the single-family home business.

At the midpoint of the $18 to $21 indicated range, the shares would be priced on a par with its chief rivals at 17.9 times the company’s core funds from operations, a non-GAAP metric commonly used for REITs. Those stocks are more fully valued now, though; American Homes shares have risen by 27.5 percent since the end of 2015 and Colony Starwood is up 31.8 percent.

That rally, combined with the sector’s slowing dynamics, explains Blackstone’s sensible pricing. The housing recovery and rising interest rates have made this a mature industry almost overnight. Invitation Homes made just 293 net home purchases in the first nine months of this year; at the peak it was buying more than that every week.

Rental growth is far from guaranteed in an economy where wages are only beginning to pick up. And political pressure could impede efforts to drive up margins. A recent study by the Federal Reserve Board of Atlanta found that corporate owners of single-family rentals were more likely to file eviction notices against tenants than individual owners. Investors looking for a quick killing may want to seek out less gentrified neighborhoods.

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