BX Blackstone Inc

Private-equity giant Blackstone Group LP is about to open up its massive bet on single-family housing to outside investors.

Invitation Homes LP, which manages the largest pool of rental homes in the U.S., has filed confidentially for an initial public offering that could come as soon as January, according to people familiar with the matter.

The Dallas-based company plans to sell about $1.5 billion worth of stock and use the proceeds to pay down debt, one of the people said. Based upon the portion of a company that is typically sold in an IPO, Invitation Homes could be worth around $7.5 billion.

Deutsche Bank AG and J.P. Morgan Chase & Co. are among the banks Invitation Homes tapped to lead the IPO, said people familiar with the deal.

A public listing would set the stage for Blackstone to start exiting the business, one of the biggest bets the firm has ever made. As of last fall, the firm had spent roughly $10 billion to acquire and fix up about 50,000 foreclosed homes, taking advantage of bargain prices in the aftermath of the housing crash.

The deal's outcome also could cement the legacy of Jonathan Gray, who runs the firm's $102 billion real-estate business and is in line to eventually succeed co-founder Stephen Schwarzman as chief executive. Mr. Gray recently was in the running to serve as Treasury secretary under President-elect Donald Trump but said he still had "much work to do at Blackstone."

An Invitation Homes IPO would come at a time when U.S. home prices have reached all-time highs and homeownership rates are at their lowest level in at least 50 years, suggesting that rental-housing demand will remain robust.

Starting with a $100,000 home in Phoenix in 2012, Blackstone went on a multiyear homebuying binge in 14 metropolitan areas. At its peak, the firm was spending about $150 million a week on foreclosed homes, often sight unseen. Invitation Homes now manages about 50,000 homes.

In an interview last year, Mr. Schwarzman said the firm's housing bet began after the foreclosure crisis when banks were loaded with repossessed homes and under pressure from regulators to tighten lending standards.

"We said, 'Oh my goodness, this could be huge. Nobody is going to be able to borrow, they're going to need housing,'" Mr. Schwarzman told The Wall Street Journal. "So we went out and started to buy houses to rent to people."

The wager spawned follow-on investments at the firm. When Blackstone found itself unable to secure financing for its purchases, it decided to launch a company, B2R Finance LP, that lends specifically to landlords. To recoup some of the cash it spent on homes, Blackstone and its bankers created a new type of bond backed by rental income from batches of homes.

Though Blackstone assembled the largest pool of homes, it isn't the only Wall Street firm that scooped up big swaths of Main Street.

With cash from Alaska's state oil fund, self-storage magnate B. Wayne Hughes launched American Homes 4 Rent, which owns about 48,000 homes in 22 states.

Real estate moguls Barry Sternlicht and Thomas J. Barrack Jr. merged their rental-home portfolios earlier this year to make the country's third largest landlord, Colony Starwood Homes, which said it owned 30,407 houses as of Sept. 30.

Donald Mullen Jr., a former Goldman Sachs Group LP executive who a decade ago helped oversee the firm's lucrative bet against the housing market, has been soliciting investors for $1 billion to buy homes to add to the 16,500 houses his Progress Residential has already bought.

The stock market reception for American Homes 4 Rent and Colony Starwood was tepid at first, as investors questioned their ability to efficiently maintain houses spread across the country and wondered whether they would abandon on the rental business and sell the homes when prices rebounded.

But their stocks have risen this year to move closer to the value of their properties. Colony Starwood shares are up 34.9%, giving the company a market value of about $3.1 billion. American Homes 4 Rent shares are up 26.5%, and the company has a market value of nearly $5 billion. The companies are structured as real-estate investment trusts, which manage properties, collect rent and pass profits onto shareholders.

On a conference call with analysts in July, Blackstone President Hamilton "Tony" James said Invitation Homes was still buying homes, though in lower volumes, despite rising prices. He said the company had become a "more mature investment in terms of rate of growth" for Blackstone.

Blackstone has indicated plans to take Invitation Homes public by early next year, without being more specific.

Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com, Dana Mattioli at dana.mattioli@wsj.com and Ryan Dezember at ryan.dezember@wsj.com

(END) Dow Jones Newswires

November 30, 2016 19:05 ET (00:05 GMT)

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