April 25th, 2014 10:56 AM by Nick Rapplean
The mega-investor consortium, the Blackstone Group, has (as you know) bought billions of dollars worth of rental units in recent years. One of the concerns has been that the owning and operation of a single-family rental has long been the domain of small property management firms and mom-and-pop investors... and there’s a good reason for this. Single-family homes, whether for sale or for rent, tend to need individual treatment. They differ from one another. They're not cookie-cutter investments that can easily be rounded up like cattle and treated as if they were all slightly different versions of the same property.
The apartments in large developments, on the other hand, usually have one to six basic floor plans with few differences. They are easier to maintain, to track, and to rent. A guy with a clipboard can generally handle the chore, whereas a crew of inspectors and cleaners and record-keepers tends to be needed if you're taking care of a whole neighborhood of homes.
It's worth considering the simple fact that a giant firm like Blackstone tends to bring a kind of comfortable similarity-- sometimes even sameness-- to all it takes on. Its obvious model is "Buy it, fix it, sell it." Whether it is buying the Hilton Hotel chain or the single-family residence down the street, it will approach the transaction in basically the same way. Buy it, fix it, sell it.
Blackstone does most of its real estate investing through its Invitation Homes unit. Visit the firm's website at http://www.invitationhomes.com/ and you will see what a fine job the company is doing in the delicate task of marketing itself at a welcoming company that is today's innovator in renting policies. (The term they use is "high quality rental experience.") Here's a bit of the official marketing copy:
"Founded in 2012, Invitation Homes leases single family homes in 14 regions across the country. Since it began, Invitation Homes has purchased more than 44,000 houses, making it the leader among single-family homes for rent companies in the U.S. Based in Dallas, Texas, Invitation Homes offers a high-quality rental experience that includes professional property management, 24/7 emergency maintenance, an online portal for rent payment and a friendly policy toward pets."
Buy it, then fix it, as they say: "Each Invitation Homes rental home is thoroughly renovated with quality and care. Before you ever move in each rental home passes our rigorous 250-point quality assurance program. Along with our warranty, professional management, and customer service, this gives you the peace of mind you deserve. All of our homes for rent are pet-friendly too!"
Sounds pretty good, no? My ears think they're hearing big changes in rental practices. But let's not forget the third part of the program-- Sell it.
Again, the more similar each home-- and each home's financing-- can become, the easier and, perhaps, more profitable the eventual sale will be for Invitation Homes. And if a renter calls with a request that his or her home not be sold, guess what? SOL. The renter's life is still dependent on Invitations financial needs, not his or her own needs.
Finally, I find a subject nagging at the back of my brain. Invitation is developing its own financing. A "small" investor can borrow $500,000 to get into the SFR investment game, and Invitation will securitize that, creating the financing for buyers and sellers. Who gets to do all this financing business? Who's done it so far?
We watch with concern as securitization and standardization threaten once again to reduce the financing market to a few privileged players.