Big Boys Cashing in On Rents and Mortgages

Louisville   When it’s good for the hedge funds and real estate investment trusts (REITs), it’s almost never good for the rest of us, especially the beleaguered renters of America or anyone trying to move the next step to buy a home or get a mortgage.

Blackstone, the mega-private equity fund, cashed in once again on its multi-billion dollar bet on the rental market after acquiring 80,000 or so homes in seventeen markets around the USA, most of it through foreclosure fire sales.  Many of these homes were in semi-suburban areas around cities like Phoenix and Memphis taking advantage in the inelegant words of the Wall Street Journal “in a wager that many Americans would be willing to rent the suburban lifestyle they could no longer afford to own.”

It’s fair to say that they have made out like bandits!  The Journal figures the take in rough numbers as follows:

“…Blackstone has reaped roughly $2 billion from its two share sales [in Invitation Homes, Inc.] this year.  It also has received $682.5 million payout from Invitation before the company was public and about $197 million in dividends paid out on the firm’s shares since the IPO.”

They aren’t alone.  Their chief competitor American Homes 4 Rent is also reporting improved occupancy rates with lower maintenance costs in a climate of rising rents, as both prove that they can mange tens of thousands of rental properties when families are unable to access mortgages as easily or at a price point enabling ownership.  Other than this being great news for Wall Street and these wheeler-dealers, it’s hard to see this as good news for anyone else.

And, more news in this vein doesn’t add up to better news either.  REITs are coming back into the housing market at huge levels again, increasing their mortgage-bond portfolios by almost 28% to $308 billion over the last twelve-months or so.  Such activity puts more money at hand, but the lessons of the meltdown a dozen years ago continue to be dimly remembered since there is little real oversight examining how risky these plays may be or the different financial vehicles they might fuel in order to provide returns to investors.  Analysts claim to the Journal in another report that before the recession they were leveraged at twelve times equity, but now they are only five times equity.  Gulp, I know we’re supposed to feel better at that number, but somehow, I’m not quite there.

What do I know, but none of this adds up in a positive way for me?  Middle-income people can’t afford homes so they are paying rising rents for suburbia and hedge funds are cashing in, and Wall Street is putting more money into mortgage instruments for those with enough money to pay top dollar, while regulators and Congress are trying to exempt additional banks from community reinvestment and other reporting requirements at the same time.  To me it looks like more of the national housing market, like so much else, is being skewed to the rich and away from the rest of us.

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