Blackstone-backed real estate firm learns how to be a landlord
A number of big companies are betting against the American Dream. They think lots of people are going to want to rent instead of buy a home. One of the biggest bet-makers, with 40,000 rental properties under its belt, is Invitation Homes.
Realtor Jim Tice first noticed the company popping up as a buyer in a Minneapolis suburb. He was trying to sell a client's house that was headed to foreclosure. Then the client got a cash offer from Invitation Homes. Tice says the company provided a bank statement to prove it had enough cash to cover the deal. He says the account balance was eye-popping.
"A buyer usually isn't showing you millions of dollars of savings in order to buy. So it was pretty impressive in that respect," Tice says.
Invitation Homes is a subsidiary of the Blackstone Group, the world's largest private equity firm. And over the past year and a half, it has spent a whopping $7.5 billion buying those 40,000 properties—1,000 of them in the Twin Cities.
Invitation Homes largely buys low-priced foreclosures. Then it spiffs them up and rents them out. Experts say large-scale purchases of foreclosures by investors like Invitation Homes have helped housing markets heal.
"Had it not been for them, prices would've fallen further and it would've taken longer to recover," says Elliot Eisenberg, a housing economist.
Eisenberg says since the foreclosure crisis, credit standards have tightened and a lot of people can't get a mortgage. As a result, Invitation Homes and other big investors are betting that home rentals will become increasingly popular.
"It's certainly a bet. Whether it's worth making -- we'll know in a couple years how it turns out," he says.
Until recently, it's largely been mom and pop outfits that rent houses. Eisenberg says big investors could potentially run that business more professionally.
So far, Micheal Apple has had a good experience renting a four-bedroom house from Invitation Homes in a Minneapolis suburb. Apple says if something's broken, his property manager jumps right on it.
"Either I call her or I email her, and she gets back to me within a day or so," he says.
Not so for another Twin Cities renter, Brad Dukes. He's got a beef about the "throne" in his rental home. When Dukes sits on the toilet, his knees barely clear the wall in front of him.
Dukes says the house was advertised as having two bathrooms. But one was just a free-standing toilet in the basement. Invitation Homes agreed to frame up a real bathroom and dropped a few thousand dollars to add walls, a shower and a sink.
Still, Dukes is dismayed by the end product.
"The exterior of this box they put in this unfinished room is going to remain. I'm going to be looking at sheetrock," he says.
Renters in other markets have panned Invitation Homes in online reviews. But in the Twin Cities at least, the company may not have enough renters yet to establish a clear track record. I checked out a random sample of homes the company's purchased. All of them were vacant, some for more than six months.
Andrew Gallina is a spokesman for Invitation Homes. He's aware of the empty houses and complaints from renters. Gallina admits the company is still learning the ropes. It has, after all, purchased 40,000 homes in a short period of time.
"There are times we're going to be disappointing to a resident. But at the same time, we have a real commitment to getting it right," he says.
Of course, if the landlord gig doesn't work out, the firm always has an exit strategy: Sell the homes at a profit as prices rise.