Wall Street Investors Continue to Target Residential Housing
July 5, 2021
3 min read

Soaring home prices and strong demand for residential housing have once again caught the attention of large Wall Street Investors. As recently reported in the Wall Street Journal, “Blackstone Group Inc. has agreed to buy a company that buys and rents single-family homes in a $6 billion deal, a sign Wall Street believes the U.S. housing market is going to stay hot. The investment firm confirmed Tuesday that it has reached a deal to acquire Home Partners of America Inc., which owns more than 17,000 houses throughout the U.S. Home Partners buys homes, rents them out and offers its tenants the chance to eventually buy.

As we have discussed in several posts over the last year, the US residential housing market is currently experiencing a heightened level of demand. A level that could persist over the next several years. We point out these developments because we believe that investments from prominent Wall Street firms like this further confirm the strong underlying fundamentals that exist in residential real estate markets. Kathleen McCarthy, global co-head of Blackstone Real Estate is quoted in the article as saying, “That supply-demand imbalance will not be fixed overnight.”

Residential housing for rental and purchase is experiencing a severe shortage. There are several reasons to explain why the residential real estate market is experiencing this acute shortage of homes. Large national home builders either delayed or cut back new construction following the financial crisis of 2008/2009. In addition, millennials are forming families and seeking residential housing in greater numbers. This particular demographic now constitutes the largest single demand driver. As detailed in the article, “on a historic basis, the market remains red hot, and analysts say demand from millennials entering their prime home buying years is expected to fuel demand for years to come.”

One of the interesting facts to note is that this is not Blackstone’s first foray into the residential housing market. As mentioned in the article, “Blackstone was among the big investment firms to buy houses in bulk in the aftermath of the subprime crisis, when lenders sold off foreclosed homes at marked-down prices. The New York firm built a portfolio of tens of thousands of single-family homes, then rented them out through a company called Invitation Homes Inc.” This is important to note, because that particular period of time – the aftermath of the subprime crisis – was an extremely opportune time to invest in residential real estate. 

Blackstone entering that market sends a signal that they believe the current residential market is once again a potentially lucrative investment. In addition, Blackstone is not the only large Wall Street firm investing heavily in the space. As outlined in the article, “The firm is rejoining an expanding roster of Wall Street powerhouses that have acquired single-family rental companies. Canadian property giant Brookfield Asset Management Inc. recently acquired a stake in a landlord that owns more than 10,000 U.S. homes. J.P. Morgan Asset Management and Rockpoint Group LLC also have made big investments in single-family rental operators.”1 

However, lest anyone believe that these large firms are locking out other investors from entering the market, even with this latest investment, large institutional firms are still a very small portion of the enormous residential market. As detailed in the article, “For all their recent activity, big institutional investors own about 300,000 U.S. homes, or only 2% of single-family rental homes, according to a report by New York-based financial firm Amherst Pierpont Securities LLC. About 85% of the single-family rental market is owned by investors with 10 or fewer properties, the firm said.” In other words, while this activity is a sign that Wall Street continues to be bullish on the sector, there is still plenty of room for individual investors to profit in the space as well.

While the recent housing boom has been challenging for would-be home buyers and renters, the soaring prices have been a significant wealth creating event for current homeowners and residential real estate investors. Ultimately no one knows how long the current housing boom will last. Eventually, the market will come back into balance, and a healthy supply/demand dynamic will prevail. However, in the short run, moves like this from large Wall Street investment firms should give homeowners and residential real estate investors some confidence that the welcoming investment environment will continue for some time.

Steve Sapourn
Steve Sapourn

Steve Sapourn is an active real estate investor, Aloha Capital’s co-founder, and portfolio manager. At Aloha, Steve has overseen more than 1300 real estate investor loans in 35 states. He has managed alternative investments in a variety of asset classes for over 25 years. He has deep experience in designing low-risk portfolios that reliably outperform benchmarks. Over his career, Steve has served as portfolio manager for a Fund of Funds, where he analyzed hundreds of alternative investment strategies. In addition, he has developed and implemented quantitative trading strategies in the futures, stock, and volatility markets. Steve’s long and diverse career benefits Aloha’s investors.