Blackstone Group's Invitation Homes, after spending more than $9 billion in a U.S. property-buying spree, is starting to sell some houses as it shifts focus from rapid expansion to fine-tuning its holdings.
The housing landlord has agreed to sell about 1,300 Atlanta-area residences that don't fit its strategy, which targets communities with higher rents and quality schools, according to Chief Executive Officer John Bartling. The transaction would be the biggest bulk sale for the three-year-old company, the largest U.S. owner of single-family homes.
"It's that stage in our lives where we’re now in a position of looking at dispositions as an active part of portfolio balance," Bartling said in an interview. "You should expect us to sell 5% of our portfolio every year."
Blackstone led private equity firms, hedge funds and other large investors in buying thousands of houses after the real estate crash, creating a new asset class of single-family rentals. With the market recovering, landlords are seeking ways to increase profitability by raising rents and making operations more efficient. For Invitation Homes, paring its portfolio may also help it in preparation for a potential initial public offering, which Blackstone has said it could be ready for in the next two years.
Bartling declined to comment on any IPO plans. He also declined to disclose the sale price of the Atlanta-area residences or the buyer, citing a nondisclosure agreement. Invitation Homes, which is still continuously buying houses, will own about 48,000 properties after the deal, he said.
Most of the Atlanta houses in the sale are worth less than the typical Blackstone-owned home. The average cost per property in Invitations Homes' most recent securitization was $203,588, including renovations, according to a Morningstar Inc. report last month. About 13% of those houses were in Atlanta, the most of any market.
Lower-value properties tend to have higher vacancy, turnover and capital spending rates, according to Brian Grow, managing director in the credit-ratings unit of Morningstar.
"The lower-value properties are much higher touch," Grow said. "If you own a huge portfolio nationwide and you want consistency on how you manage the properties and you don't want as high touch, I think the higher-value properties can be beneficial."
Invitation Homes is spending about $20 million to $25 million a week buying properties — down from more than $100 million in 2013 — with a focus on the West Coast and Southeast. The firm sees opportunities to acquire more houses from smaller operators cashing out, Bartling said. It also is considering offering rent-to-own programs or future financing options for tenants who will eventually become homeowners, he said.
Shares of publicly traded single-family landlords have trailed apartment companies as investors remain wary about the costs of running scattered-site rental properties. Landlords need hundreds, if not thousands, of homes in a market to achieve the scale needed for efficient management. That's pushed smaller and mid-size owners to sell.
Starwood Waypoint Residential Trust is selling as much as 5% of its roughly 12,000 homes, "pruning and optimizing our single-family portfolio," Douglas Brien, CEO of the Oakland, Calif.-based landlord, said on a May conference call.
Purchases by institutional investors — those who acquired at least 10 rental properties over the previous 12 months — fell to 2.4% of single-family home sales in May, the lowest in records dating to early 2000, according to RealtyTrac.
Five companies competed for Blackstone's Atlanta deal, including some that didn't have existing landlord businesses, according to Bartling.
"We were very selective," he said of choosing the buyer. "Since these are leased homes, we made sure they would honor our leases."
Blackstone bought most of the houses it’s selling in 2013 from BLT Homes, a rental company owned by Building & Land Technology, in the industry's then-largest bulk transaction.
About 16% of the homes were leased to tenants with Housing Choice Vouchers, also known as Section 8 vouchers, which subsidize housing for low-income renters. Not all of Invitation Homes' Atlanta properties occupied by renters with vouchers are included in the sale, and the landlord continues to accept Section 8 tenants, according to the company.
This year, BLT Homes sold more than 5,500 homes in the Midwest and Southeast in two bulk deals to Cerberus Capital Management and Tricon Capital Group Inc., exiting the landlord business it started in 2012.
"We continue to think we are just in the early stages of consolidation here," Bartling said.