Blackstone Group LP is planning the first offering of bonds backed by properties owned by multiple landlords, opening the door to a new type of debt that may make more money available to housing investors as demand for rentals grows.
Blackstone’s B2R Finance LP unit will sell about $230 million of securities tied to 144 mortgages secured by U.S. single-family homes and other residential properties, the firm said Friday in a statement. The transaction is expected to close in April and be rated by at least two rating companies.
Lenders including B2R, Cerberus Capital Management’s FirstKey Lending LLC and Colony American Finance LLC, a unit of Thomas Barrack Jr.’s Colony Capital, have been providing financing to landlords of the more than 14 million rental houses in the U.S. who have few other options for loans.
There is the potential for $30 billion of debt backed by single-family rentals to be originated annually, with the majority coming from multiborrower deals, Jade Rahmani, a Keefe Bruyette & Woods Inc. analyst, said in a report last year.
“We remain in the early stages of the recapitalization of the housing market,” said Carl Bell, deputy chief investment officer at Amundi Smith Breeden, the U.S. subsidiary of global asset manager Amundi, which oversees about $1 trillion. “Multiborrower deals have the potential to substantially lower the cost of capital for smaller investors. If this sector grows as expected, it would be a significant positive for the continued housing recovery.”
Demand Climbing
Institutional investors began buying single-family homes after the housing crash led to deeply discounted prices at foreclosure auctions and higher demand for rentals. Large buyers––those who purchase at least 10 properties a year––have amassed about 528,000 single-family rental homes for about $68 billion since 2011, creating a new asset class in what was once a mom and pop industry, according to a report this month by Haendel St. Juste, a Morgan Stanley analyst.
The biggest rental-home buyers have been able to use equity sales, bank-arranged credit lines or debt markets to finance purchases.
Since November 2013, Wall Street has sold about $8.8 billion in securities issued by corporate landlords in single- borrower deals. The debt provides firms with capital to buy more properties and increase returns through leverage. Blackstone’s Invitation Homes, with about 47,000 properties, was the first to sell bonds. The company is said to be marketing about $605 million in debt next week.
Smaller Investors