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May 01, 2013

At 1,400 Homes, Blackstone Makes its Largest Bulk Purchase

Private-equity firm Blackstone Group bought 1,400 homes in Atlanta — its largest ever bulk purchase of residential properties — that will be added to its portfolio of single-family rental homes, National Mortgage News reported April 25.

To date, Blackstone has spent more than $4 billion on 24,000 rental properties, making it the nation’s largest buyer of these properties.

Blackstone is one of several firms, hedge funds and individual investors seeking to buy an ever decreasing pool of foreclosed and distressed properties that can be rented out for profit. Home prices remain about 29 percent below their 2006 peak, and investors hope to take advantage of the low prices, as well as the fact that many would-be borrowers can’t get home loans and will need to rent, National Mortgage News reported.

David Lykken, managing partner of Mortgage Banking Solutions, told National Mortgage News that many of the best deals on foreclosed and distressed properties are gone, so now is a good time for small to mid-size investors who bought early in the crash to start selling to purchasers like Blackstone.

In this latest Atlanta deal, Blackstone paid real estate developer Building and Land Technology more than $100 million for the 1,400 homes, most of which already are leased. About 16 percent of the portfolio qualifies as Section 8 housing, making them eligible for federal low-income housing subsidies.

Deals like the Atlanta one have been common during the last several months, and included a November deal where real estate investment firm Colony Capital, in a joint venture with Fannie Mae, bought 970 homes with a value of $176 million. In September, Fannie Mae sold 699 properties in Florida through a joint venture with real estate investor Pacifica Cos. LLC for a value of $78.1 million.

However, bulk purchases are becoming rarer. Jonathan Gray, Blackstone’s global head of real estate, told National Mortgage News that “If I had to guess, over the next 6 to 12 months, it will be difficult for us to continue in our current setup in terms of deploying capital.”

These investor purchases also are driving up prices. Home values in Atlanta have surged 12.4 percent over the last year compared to a 10.2 percent average gain across the U.S.

In the last year, Building and Land Technology’s single-family rental business has purchased more than 4,000 distressed homes in 10 markets and is looking to buy another 20,000 properties, Carl R. Kuehner, BLT’s president and CEO, told National Mortgage News. Many of the homes in the firm’s portfolio are available for rent to tenants with Section 8 vouchers from the U.S. Department of Housing and Urban Development.

Andrew DeFrancesco, chairman of investment firm Delavaco Properties Inc. in Fort Lauderdale, Fla., told National Mortgage News that low-income properties have higher yields and better chances for price appreciation.

While many large-scale investors hope to sell the properties in the long-term after housing prices appreciate, they have to make income on rent in the immediate present, and that’s easier to do with low-cost properties. “If you’re building a vehicle that’s going to be publicly traded,” Aaron Edelheit, chief executive officer of The American Home, an Atlanta-based investment and property management firm, told National Mortgage News, “you’re going to have to show cash flow. Wall Street is going to care about cash flow.”

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