Good evening r/Superstonk, Jellyfish with you! I am probably going to get labeled a shill and regret posting this BUT I think the ‘BlackRock paying up to 40% over list price!’ and ‘BlackRock is buying whole neighborhoods and is outbidding homebuyers by paying 20%-50% over asking price’ might be a tad overblown. I do not doubt they are purchasing properties but I am not sure it is as bad as comments in my housing bubble posts are making it out to be.
My posts on new home sales and existing home sales explain how housing could be connected to GameStop, I recommend checking out first. A common question in the comments in each thread is 'what about BlackRock', so adding that context.
As to why we are even talking about housing: on the live stream today, the hosts mentioned diving into the bigger macroeconomic picture as the system is so screwed up that everything is invariably tied together. I had already made several posts in this mold and this is the next from that lens.
If you still want to call me a shill, I honestly don't have a response for you save disagreeing with the popular narrative of the moment while supported by facts =\= shilling!
Back to the post:
First, I am only seeing the claim sourced on Twitter? If someone can point me to other sources and I am missing something, please do! But the Twitter thread I found states:
Wow, that is eyepopping but I want to confirm it!
The Twitter thread references a Wall Street Journal article.
However, digging into it, BlackRock is only mentioned in passing:
Ok, this says they are on the hunt, but not ‘purchasing whole subdivisions at a premium’, what does the article say about it?
It's not BlackRock doing the buying.
Err, I think the original poster in the Twitter thread is confusing the corporate merger between two companies and taking ownership of said purchase with ‘buying the whole neighborhood’, as it appears to me the WSJ actually reported that homebuilder D.R. Horton built a subdivision of 124 “built-to-rent” houses in Conroe, a city near Houston, then found tenants for the properties, and went to market with the whole subdivision in December of last year. Then, as the article reports, the winning bid was $32 million by online property investment platform, Fundrise LLC.—Not BlackRock.
The article goes on to say that D.R. Horton made a gross margin of up to 50% on selling that subdivision of rental properties, roughly twice the gross margin it gets from selling houses to regular homebuyers—is this where the number of 50% over asking price is coming from? If so, it isn’t even referring to BlackRock! Also, the entire deal was for $32,000,000 for 124 homes for an average price of $258,064.52 per home.
Ok Jellyfish, but there is something nefarious about Build-to-rent, right?!?!?
From what I have been able to read and learn, Build-to-rent has become a goldmine for homebuilders; a lot of money is flowing into these purpose-built rental properties. I think that makes sense too. These are brand-new cookie-cutter houses marketed to renters. They’re nice homes but don’t offer the same extravagant finishes that new or existing homeowners are expecting because they don’t have that sweet pre-approval for more house. Remember just because the bank says you can afford it, doesn’t mean you need to take it all. Well, renters aren’t even tempted for brrrrr since it is the builders working to a bottom line ‘keeping costs lower’ than their residential counterparts…
Additionally, rather than building a house at a time here or there to be rented out, home builders have shifted to building whole subdivisions, finding tenants to fill them, locking them up, and then selling the entire subdivision to pension funds and other income investors.
So, we are starting to see homebuilders market single-family homes in bundles, and to me anyway, it makes sense that this would draw institutional investors since this is closer to the setup of how they have purchased multi-family (big apartment buildings) previously.
It has now suddenly become more efficient for them to target single-family homes vs having to go through the process 124 times with 124 families (using the subdivision referenced in the WSJ as an example).
This approach started in the multi-family market in late 2011 when properties were purchased for cents on the dollar, in the hardest-hit big housing markets. Funnily enough, it was Blackstone:
OK, Blackstone was in, but is now out, and spun its business into Invitation Homes, which now rents out 80,000 houses.
Others like American Homes 4 Rent followed the same route: buy existing houses out of foreclosure for cents on the dollar, rehab them if necessary, and rent them out.
Fast forward to today though and things are different. Investors are buying in a bubble housing market, paying sky-high prices, even as rents are a mixed bag still from the pandemic—dropping sharply in some big markets, but jumping in smaller markets. However, the pendulum could swing back the other way in the urban areas if in-person work supplants work from home.
While the market is starting to cool, investors are still trying to make $$$. However, buying at these prices is prohibitive to rent the properties out profitably. And we saw above, D.R. Horton has found out, investors are willing to pay an arm and a leg for purpose-built developments that haven’t been inflated by brrrr but that are responsible for the bottom line. What a happy union for them, shitty longer-term consequences for us...
Adding, there have been all kinds of big corporate deals recently in the single-family rental market:
American Homes 4 Rent is getting into the built-to-rent segment by partnering with J.P. Morgan Asset Management to build $625 million worth of rental houses. Lennar got into a single-family rental deal with investment firms Centerbridge Partners and Allianz, to build over $4 billion worth of single-family rental houses.
Rockpoint Group LLC has invested big in single-family rental companies. Per the WSJ article, Brookfield Asset Management acquired a controlling stake in Conrex, which owns over 10,000 single-family rental houses in the Midwest and Southeastern US.
These are new houses that are going to be added to the US housing supply (that I think are ultimately going to play a role in popping the bubble as the supply gates swing open)
Yet, according to the WSJ article, which cited Amherst Pierpont Securities, big institutional investors still own 'only' about 300,000 houses in the US, or about 2% of the single-family rental market, with 85% of the single-family rental houses are owned by small investors with 10 or fewer properties.
So, to try and tie this all together, what was new in 2011 and 2012 was the entry of big $$$ firms (Think Blackstone) buying tens of thousands of homes out of foreclosure during the depth of the housing bust.
What is new now, is that big home builders like D.R. Horton are making huge profit margins selling build-to-rent developments to these very same investors now. I see this sucking for renters long term as institutions are going to need big rent increases to keep up with the purchase prices in the inflating bubble.
Not to be all gloom and doom, the WSJ article also mentions one of the entities Blackstone purchased (Home Partners of America) buys houses and rents them to tenants with an option to buy at a preset price at any time with 30 days’ notice:
TL:DR There you have it! Blackrock certainly isn’t our friend but I think the rumors of its property purchases are a little overblown to bordering on FUD? This build-to-rent model introduces a new barrier to individuals buying homes, but I would argue it is other folks and investors taking out those loans above $374,000 and $350,300 pricing would-be homeowners who are renting into a build-to-rent model.
If left unchecked, monied interests will certainly turn this into modern-day serfdom, but as it stands now institutional investors still own only about 300,000 houses in the US, or about 2% of the single-family rental market, with 85% of the single-family rental houses are owned by small investors with 10 or fewer properties.
If I am missing something please let me know or if anyone is aware of other data that should be considered, please let me know!