Appeal Keeps Building for Still Unproven Investment In Rental Housing Market

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Commercial Real Estate MissoulaWhether Fad or Fundamental, Major Firms such as Blackstone, Colony Financial Continue to Embrace Single-Family Rental Market
December 5, 2012
One of the most significant real estate investment trends of 2012 has been the tremendous amount of institutional capital directed into single-family housing rental investments. And while it’s still too early to tell whether it’s all a passing fad or ‘the next big thing,’ some have begun questioning whether the burgeoning industry will see long-lasting returns in rental income and property value appreciation.
If a fad, then the investment activity over the past few weeks could be the zenith of the trend. If part of a long-term housing recovery play, then the recent developments may well represent an inflection point as several new domestic and international institutional players have placed big bets on the market, including Blackstone and Colony Financial, which have stepped up their earlier efforts to expand their single-family holdings.Blackstone formally launched its Invitation Homes last month as its national single-family rental platform.

“The single-family rental market has always existed with 12 million homes for rent but there never has been a national, institutionally-managed, single-family rental platform,” Blackstone said in announcing the launch. “In addition, household formation and population growth in the U.S. are solid but new housing supply is 63% below the historical average, creating a compelling opportunity to invest.”

This week, Colony Financial commenced a secondary stock offering to raise up to $195 million. Colony said that intends to use $150 million of the money raised to to make an additional investment in CSFR Operating Partnership LP, its investment vehicle created for the purpose of investing in single-family rental homes.

Also, this past week, Two Harbors Investment Corp. entered into an agreement with Silver Bay Realty Trust Corp. as part of Silver Bay’s plan to acquire a portfolio of more than 3,100 single-family residential properties simultaneously with the closing of its initial public offering.

And North Carolina-based U.S. Residential Asset Fund launched its unique program in the REO-to-rental market promoting its rent-to-own program.

The market opportunity has also attracted a number of international investors, including Sydney, Australia-based U.S. Masters Residential Property Fund, which is seeking to raise up to $80 million in additional funding to continue its aggressive purchase of New York metro area homes.

Examples of the recent entry of significant private equity players focused on bulk purchases of foreclosed homes in 2012 include:

– Blackstone: 6,500 homes in AZ, SoCal;
– Waypoint: 2,400 homes in CA, AZ;
– Colony Financial: 3,600 homes in CA, AZ, NV, TX, GA, CO; and
– KKR: 200 homes in AZ, NV.