“This is the kind of thing that happens once -- every once in a while, where you see something that’s a market-turning trend and we are loading the boat,” Blackstone CEO Stephen Schwarzman said during an October earnings call.
Firms including Blackstone, Apollo, Thomas Barrack Jr.’s Colony Capital LLC and Public Storage founder Wayne Hughes’s American Homes 4 Rent started emerging as large-scale landlords after more than 7 million homeowners lost their properties through foreclosure or by selling for a loss since 2007, according to RealtyTrac.
That’s helped drive the recovery in home prices, which rose 12.1 percent in April from the prior year, according to a S&P/Case-Shiller index. Even as the economy has strengthened, the homeownership rate declined to 65 percent at the end of first quarter, from a peak of 69.2 percent in June 2004, as fewer Americans have been able to qualify for mortgages.
Fledgling Business
Blackstone’s fledgling lending business could help extend the reach of rental-home buyers who can’t access investment bank funding, a gap Cerberus Capital Management LP is also trying to fill with First Key Lending, which it started this year.
Prior to the crash, regional banks were the primary source of loans for landlords buying properties. More than 475 banks have failed since the real estate collapse, according to the Federal Deposit Insurance Corp., while larger banks have tightened mortgage underwriting standards and are focusing on the biggest investors. Fannie Mae, meanwhile, limits landlords to loans on a maximum of 10 properties and Freddie Mac has a limit of four.
Johnson Capital, a commercial real estate advisory firm, will originate and underwrite the B2R financing, according to people familiar with the offering. Loans will be offered at 75 percent of home values for pools of leased properties, and 65 percent of the cost of portfolios without tenants, according to terms sent to potential borrowers obtained by Bloomberg News. The debt would have floating interest rates of 5 percent to 7 percent for up to five years.
‘Absolutely Huge’
Dennis Cisterna, co-head of Irvine, California-based Johnson Capital’s opportunistic finance division, declined to comment on the company’s relationship with Blackstone. He said Johnson Capital has arranged more than $100 million of loans for rental investors in the last 18 months through several different lenders.
“The market potential is absolutely huge,” Cisterna said. “There are about 14 million rental homes in the U.S. with an average price of nearly $200,000. Even if you are financing 10 percent of that, it’s certainly a large enough amount to warrant a new institutional lending sector.”