Blackstone, Starwood Join Forces to Become America’s Biggest Landlord

Key Takeaways:

  • Together, Blackstone Group’s Invitation Homes and Starwood Waypoint Homes will manage around 82,000 single-family homes across 17 metros
  • The new company will retain the Invitation Homes name
  • The majority of shares in the company (59%) will be owned by Blackstone

Blackstone Group’s Invitation Homes and Starwood Waypoint Homes, two of the largest rental-home owners in America, have decided to merge.

The resulting combined company will own and manage roughly 82,000 single-family homes spread across 17 metros, including the Atlanta, Miami and Southern California rental markets. The creation of this new entity, which will retain the Invitation Homes name, is a sign that Wall Street is betting on more U.S. families renting rather than buying a home, The Wall Street Journal reports.

The merger between the two real estate investment trusts was proposed by Starwood Chairman Barry Sternlicht, who noticed that the two companies were bidding against each other for a batch of homes, many of them located in California.

Sternlicht merged his rental-home portfolio with that of real estate mogul Thomas J. Barrack Jr. earlier this year, and created the Colony Starwood Homes company. The firm changed its name to Starwood Waypoint Homes after Barrack sold his stake in the company.

The New York Times reports that Blackstone was among the first private equity firms that started buying foreclosed homes in the aftermath of the financial crisis. An estimated $10 billion was spent by Blackstone in its foreclosed-home-to-rental bet. The result was Invitation Homes, a company built from scratch that emerged with almost 50,000 homes on the rental market.

Other investors that adopted similar strategies have sold out, as home prices in some markets are now well above their 2006 peaks, according to WSJ. However, the founders of Blackstone and Starwood decided to stick around and see if they could institutionalize single-family rental homes, just like they did with office towers, retail centers and apartments.

The deal between the two publicly traded REITs is the biggest one so far in the fast-consolidating institutional rental-home business, which started amidst the foreclosure crisis with big investors rushing to buy homes at steep discounts.

The new Invitation Homes company will bring together executives from both Blackstone and Starwood, including Starwood Chairman Barry Sternlicht and Blackstone’s current head of real estate, Jonathan Gray, according to The Real Deal.

The merger is intended to be a tax-free transaction. Terms of the agreement state that each Starwood Waypoint Homes share will be converted into 1,614 Invitation Homes shares. The share conversion is based on a fixed exchange ratio. Upon closing the deal, Invitation Homes shareholders will own approximately 59 percent of the combined company’s stock, while Starwood will own approximately 41 percent.

Betting on market density, the business plan of the combined company is based on proximity—the more homes they own close to each other, the more efficiently leasing agents, maintenance crews and contractors can work. Apart from making it more cost-effective, a larger company could also mean inclusion in big stock indexes.

Fred Tuomi, Chief Executive Officer of Starwood Waypoint Homes, and future CEO of the combined Invitation Homes company, said that the merger is a “win-win for both residents and stockholders.” Per Tuomi, the merger will create the leading single-family rental company in the U.S., which will not only provide exceptional service to residents, but also improve operating efficiency, to deliver “unrivaled service and high-quality housing options for families choosing to rent.”

Roxana Poenar

Roxana Poenar

With a taste for learning, Roxana joined PropertyShark in order to expand her knowledge of all things real estate. Passionate about reading and travelling, if she's not at her desk or engrossed in one of her books, then she's probably packing her backpack for a new adventure.

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