NACA sets the record straight on Blackstone and Invitation Homes
Blackstone profited greatly from the purchasing of single-family homes. Blackstone made about $7 billion since their home rental business went public in 2017, according to the Wall St. Journal. The foreclosure crisis and 2008 financial collapse had few winners, but companies like Starwood Waypoint and Invitation Homes (they merged in 2017) — and their Wall Street corporate backers (Blackstone) were among them. They have benefitted from the deception and fraud that saddled so many families of color with subprime and booby-trapped mortgages, leading to foreclosures that disproportionately affected African American and Latino families. Lower post-crisis home prices could have been an opportunity to increase affordable homeownership, but too often instead Wall Street buyers swept in, while neighborhood families were left out of the game altogether, unable to compete with cash buyers or denied access to credit. For these Wall Street speculators, with Blackstone being the biggest one, the recession of 2008 was not economically and emotionally devastating as it was for all the families that lost their homes; it was a market opportunity.
Blackstone was one of the first private equity firms to begin buying foreclosed homes in the wake of the financial crisis, fixing them up and renting them out. The firm, which began buying homes in earnest in 2011, is estimated to have spent $10 billion on its foreclosed-home-to-rental bet.
Blackstone is backed by a host of companies that bear direct responsibility for the foreclosure crisis. After first making money from the housing bubble that crashed the economy, then benefitting from the federal bailout, banks and investors now stand ready to profit all over again by cleaning up the mess they made.
So, Blackstone disrupted rental markets, delivered poor-quality homes to many of the same people who lost theirs in the first place, contributed to the global affordable-housing crisis, according to a U.N. special reporter, and made off with billions in the process.
With 9 million foreclosures lost to families, there were many properties that were distressed and cheap. Blackstone took advantage of the 2008 foreclosure crisis by buying these types of homes. Blackstone founded Invitation Homes in 2012. They bought at least 48,000 of them from 2012 through 2016. With all of Blackstone’s financial tactics, i.e., Securitization, IPO of Invitation Homes, REIT Status, help from Fannie, Freddie and HUD, credit line by Credit Suisse, and finally cashing out of all its stocks on Nov.26, 2019 for tune of about 1.7 Billion, they knew exactly what they were doing which was take advantage of the 2008 foreclosure crisis and profit enormously from it. To think anything differently, other than that the richest guys in the room didn’t realize and plan exactly what they were going to do to make the most profit, is being naïve.
Blackstone had $210.2 billion of assets under management as of the end of 2012, making it the world’s largest alternative asset manager. They raised over $13 Billion from its investors with no problem. Assuming 25% Loan to value ratio, it had over $50 Billion of buying power. From 2012 through 2016 they spent over $10 billion amassing a portfolio of more than 48,000 homes, at times spending over $150 million a week. Blackstone, through its then subsidiary Invitation Homes, began spending on properties in 2012 where prices remained near bottomed-out levels. The homes they bought were extremely discounted homes – through auction, short sale or the purchase of distressed loans. The Rise of Single-Family Rentals as an Investable Asset Class began to unfold.
Blackstone continued to use their financial engineering to have more money upfront to buy more cheap foreclosed homes before prices rise. It joined forces with JP Morgan, Credit Suisse, and Deutsche Bank to bundle the rental payments of 3,207 single-family houses and sell this bond to investors with mortgages on the underlying houses offered as collateral taken place in late 2013. But of course, it comes with a huge risk to the actual renter. What if the security blows up, just like these types of securitizations blew up and was one of the real causes of the 2008 financial crisis? Investors could demand their collateral back, forcing renters out of their homes, even if they never missed a payment. They could well end up in that situation where you get a lot of people getting evicted—not because the tenants have fallen behind, but because the landlords have fallen behind.
The Department of Housing and Urban Development (HUD) and FHFA (regulatory body of Fannie Mae and Freddie Mac) owned or guaranteed the distressed mortgages on many single-family homes. HUD, Fannie Mae, and Freddie Mac began auctioning off tens of thousands of non-performing loans that they wanted to get off their books. The vast majority has gone to hedge funds and private equity firms like Blackstone. In 2015 working hand-in-glove with Wall Street, they’ve sold off many of these houses-called delinquent assets in real estate lingo-to Blackstone, Lone Star, and other investors. Over the past few years, HUD and FHFA agencies have auctioned off about 150,000 distressed single-family properties and mortgage loans. Blackstone bought 19%. Bayview Acquisitions LLC, of which Blackstone holds a significant share, bought nearly 24,000 non-performing loans through HUD’s Distressed Asset Stabilization Program (DASP).
In February of 2017, Blackstone took Invitation Homes public in an offering that raised $1.8 billion. It also built a single-family rental giant by having Invitation Homes and Starwood Waypoint Homes merge. It created a single-family rental behemoth and doubled down on Wall Street’s bet that in post-housing-crisis America, renting would become more popular. The combined company would own 82,000 homes in more than a dozen markets and be valued at approximately $11 billion.
Like Blackstone needed more financial help, they received more help from the government which is totally absurd. In 2017, Invitation Homes disclosed in its prospectus that the company had received a 10-year $1 billion loan from Wells Fargo and that Fannie Mae would securitize and back the principal and interest. Essentially, Fannie Mae had agreed to provide a government-backed guarantee for a billion-dollar loan. This federal backing allowed Invitation Homes to benefit from lower interest rates and more favorable loan terms than the single-family rental industry had ever received before. It appears to have been a result of sustained industry lobbying. Also, in redefining single-family rental housing as an alternative form of multifamily, the industry successfully persuaded Fannie Mae and Freddie Mac to overlook regulations that prohibit the government-sponsored entities from investing in new or emerging asset classes.
Another benefit for Invitation Homes from buying these single-family homes was that they received a huge tax break, being exempt from federal taxes due to their status as Real Estate Investment Trusts (REITs).