A pair of giants in the real estate industry have joined forces to become the largest U.S. single-family landlord, with 82,000 homes across the country.
The $4.3 billion union merges Starwood Waypoint Homes, of which investor Barry Sternlicht is chairman, and Invitation Homes Inc., majority-owned by Blackstone Group LP. Jon Gray is the head of real estate for Blackstone Group. According to a Bloomberg report, it also creates additional consolidation in a still-blossoming industry aimed at corporate ownership of house rentals. Jade Rahmani, an analyst at Keefe, Bruyette & Woods Inc., said the deal brings legitimacy to the segment.
“This merger gives the industry more credibility now that there’s a more than $10 billion company, bigger than some apartment real estate investment trusts. It makes it a more investable sector with consistent returns.”
The two giants have grown by making wise decisions. Industry leader Invitation Homes had a $1.8 billion initial public offering in January, and its shares are up more than 8 percent since. Starwood has grown by merging with Waypoint Real Estate Group and then Colony American Homes. Meanwhile, American Homes 4 Rent has turned its eyes to acquiring land and building new homes strictly to rent. However, the work from here may be more difficult, according to Carl Bell, an early investor in the single-family rental industry and co-head of investments at Washington-based Invictus Capital Partners.
“The easy money has been made. From here it’s about operational and financing efficiency to help drive returns. Scale is key.”
Invitation Homes and Starwood Waypoint say their transaction is expected to create annual savings of $45 million to $50 million. Jonathan Shechtman, managing principal at Axonic, said the costs associated with managing scattered site properties have driven some smaller investors, such as Axonic Properties LLC, out of the business. The firm is selling its houses, mostly to first-time homebuyers, and buying apartments in Florida.
“The only way the single-family home business works long term is if operators have massive efficiencies of scale. Otherwise the costs of things like repairs and maintenance on houses, which each have a different floor plan, may have higher expenses when compared to apartments.”
On a recent conference call, Starwood Waypoint Chief Executive Officer Fred Tuomi, who will lead the combined company, pointed out that rental demand is even stronger than it was five years ago, when he first got involved with the landlord.
“We have a tremendous advantage of cost of capital as well as our scale. We’re positioned to win for the long term.”