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BlackRock Inc., the world’s biggest money manager, and private-equity firm KKR Co. have gained a majority stake in Home Partners of America Inc., a single-family rental company backed by Lew Ranieri.
Home Partners raised capital from BlackRock and KKR, reducing Ranieri’s stake, according to two people familiar with the transaction who asked not to be identified because the information is private.
The investments were made within the last few months and will be used for an expansion, said the people, who wouldn’t provide financial terms.
Ranieri said in an interview last week that BlackRock and KKR invested in the company, without disclosing details of the transaction.
Rising renter demand for the firm’s houses created a need for more financing, which funds managed by New York-based BlackRock and KKR are better able to provide, he said, speaking on the sidelines of a conference in Washington.
Home Partners, formerly called Hyperion Homes Inc., has been buying “in the best neighborhoods and they were buying more and more houses and needed more capital,” Ranieri said.
Tara McDonnell, a spokeswoman for BlackRock; Kristi Huller, a spokeswoman for KKR; and Bill Young, chief executive officer of Home Partners, declined to comment.
Private-equity firms, hedge funds and other institutional investors have spent more than $25 billion on about 150,000 houses since prices hit bottom in 2012, according to Keefe, Bruyette Woods Inc.
They helped drive up values around the country before slowing their purchases this year. The Ranieri-backed firm, unlike many of its competitors, gives renters the option to eventually purchase the houses they occupy.
Single-family homes aren’t a good long-term investment for landlords because upkeep expenses and renovations for new tenants cut into profits, Ranieri said last year.
“Because a house was never built to be rented, the wear and tear on the house makes it prohibitive to keep renting over a period of time because the cost of the rehab becomes overwhelming,” the mortgage-bond pioneer said in an October 2013 interview. “There’s no historic evidence of long-term single-family rental.”
Home Partners of America acquires homes in Illinois, Texas, Colorado, Florida, California, Oklahoma, Washington, Indiana, Georgia and Minnesota, according to its website.
The company offers tenants an opportunity to select a house they’d like to own and rent it for as long as five years before exercising their right to buy, giving them time to repair their credit or save for a down payment.
Larger single-family landlords such as Blackstone Group’s Invitation Homes and Colony Capital’s Colony American Homes Inc. don’t offer lease-to-own programs, preferring to keep the property long-term, with the option of selling the homes in bulk or one at a time at market rates.
Five single-family landlords have sold shares in initial public offerings and there have been more than 11 bond-market securitizations totaling about $6 billion announced in the past 12 months, allowing landlords to recoup much of the cash they spent buying and renovating homes, and giving them an opportunity to earn higher returns on the capital still invested.
Institutional investors accounted for 4.3% of single-family home and condo sales in the third quarter, down from 5.3% a year earlier to the lowest level since the fourth quarter of 2010, RealtyTrac reported today. Institutional investors are defined as companies that buy at least 10 rental properties in a calendar year, according to the Irvine, Calif.-based real estate information company.
KKR, led by billionaires Henry Kravis and George Roberts, isn’t new to the industry, having led investors who raised more than $100 million for Beazer Pre-Owned Rental Homes Inc.
That company bought more than 1,300 properties starting in 2012 and was sold in July for $263 million in debt and equity to American Homes 4 Rent, the largest single-family landlord after Blackstone.