Two big home rental companies merge

Annie Baxter Sep 21, 2015
HTML EMBED:
COPY

Two big home rental companies merge

Annie Baxter Sep 21, 2015
HTML EMBED:
COPY

Two big players in the single family home rental market are merging. Starwood Waypoint Residential Trust and Colony American Homes are uniting in an all-stock deal. The companies say their combined asset value will be nearly $8 billion.

Renting houses used to be the purview of mom and pop outfits. But since the housing crisis, several big institutional investors have gotten into the business of buying and fixing up homes to rent out.

“There are a couple of things that are continuing to keep this market relatively attractive,” said housing economist Elliot Eisenberg.

Ownership rates are continuing to fall, while rental rates climb. Eisenberg blames weak wage growth, tighter access to credit, rising home prices, and, to some extent, millennials.

“These millennials are behind their parents. They’re living alone longer. They’re getting married later,” he said. “So their career as renters is probably longer.”

But Mark Fleming, chief economist at First American, says millennials don’t want to be permanent renters.

“All the surveys say people want to be homeowners,” he said.

That means at some point the big rental companies will need a good strategy for selling off the homes they’ve been holding and renting.

Until then, rising home prices create issues for the institutional investors, too, according to Fleming. He notes that they can no longer buy properties to rent out in hot markets. Instead, they have to focus on smaller cities where home prices remain subdued.

But Fleming says because price appreciation in those markets will be slower, big rental firms may not get as much bang for their buck when they eventually sell the homes.

“I think the challenges are dependent on where you own the homes that you’re renting,” he said.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.