BX Blackstone Inc

By Ryan Dezember 

Blackstone Group Inc. has closed the door on its giant rental-home gambit.

The investment firm late Wednesday sold the last of its stake in Invitation Homes Inc., the company it created after the housing crisis to scoop up tens of thousands of foreclosed single-family properties from the courthouse steps, spruce them up and rent them out.

Blackstone began whittling its position in March through a series of bulky stock offerings. The last of which, on Wednesday, was for nearly 11% of Invitation's shares and brought back about $1.7 billion. Including dividends paid before and since Invitation's 2017 initial public offering, Blackstone reaped about $7 billion in all, according to securities filings. That's better than twice what the firm invested.

Blackstone's wager was that last decade's historic collapse in home prices and advances in cloud computing and mobile technology would enable it to buy enough suburban houses to achieve economies of scale and then to efficiently manage tens of thousands of far-flung rental properties thereafter. To do so would be to tame the final frontier in real estate for institutional investors and gain a toehold in the largest asset class in the world: the U.S. single-family home.

"The hardest part wasn't buying the homes, it was building the business, " Blackstone President Jonathan Gray, who headed the firm's real-estate business when it launched Invitation, said in an interview. "We created a company from scratch. It was created on a yellow pad. It was an idea. Now it's a real business."

As the number of foreclosed homes swelled and home prices hit bottom eight years ago, Blackstone and other big real-estate investors pounced. Blackstone, hotelier Barry Sternlicht and Donald Trump confidante Tom Barrack sent buyers to auctions with duffel bags of cashiers checks and instructions to buy anything that was cheaper than it cost to build new, not too old, big enough for a family and in a good school district.

Blackstone formed Invitation with a group of Phoenix investors who were buying trailer parks before the crash. They were led by Dallas Tanner, Invitation's 39-year-old chief executive, who at the time was fresh out of graduate school.

Starting with a three-bedroom stucco house on the outskirts of Phoenix that it bought at auction for $100,700, Invitation went on a $10-billion homebuying spree. Its buyers streamed into foreclosure auctions across the Sunbelt spending at a clip of more than $100 million a week. In about 18 months, it had bought 30,000 homes one by one and spent another $2 billion or so fixing them up.

When the flood of foreclosures subsided, the companies hit the open market looking for houses. They employ sophisticated house-hunting algorithms and increasingly build homes expressly to rent. Invitation eventually absorbed the rental empires of Messrs. Sternlicht and Barrack.

Invitation's shares received a tepid response at the onset. Lately, though, they have soared as the company has reported record occupancy and rents. Its shares are up 50% this year despite Blackstone liquidating its majority stake. Rival American Homes 4 Rent, which owns about 53,000 homes to Invitation's 82,000, is up 34% this year.

The two companies compete at the high end of the rental market. Their typical tenants aren't quite 40, have a child or two and a household income of about $100,000. The landlords have capitalized on both the willingness of relatively high earners to rent the suburban lifestyle they can no longer afford, and disinterest in homeownership from younger Americans who lack confidence in their employment and the housing market.

Though homeownership has bounced back from the 50-year lows reached in 2016, it remains well below last decade's rates.

Mr. Tanner said that Blackstone's "belief in the validity of our business model and their investments set us on a path to meet an underserved need in the housing market...we look ahead knowing we are well positioned to continue to help families live in great neighborhoods without the cost of homeownership."

Write to Ryan Dezember at ryan.dezember@wsj.com

(END) Dow Jones Newswires

November 21, 2019 09:28 ET (14:28 GMT)

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