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Blackstone to buy $1 billion worth of Tampa Bay homes for rentals
By Drew Harwell, Times Staff Writer
In Print: Friday, September 21, 2012
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Blackstone Groups says it's looking at Tampa Bay for rental properties but won't be spending $1 billion
EDITOR'S NOTE: The Times published a follow-up report on Sept. 22 which appears at the end.
A Wall Street behemoth plans to spend $1 billion on Tampa Bay's hobbled housing market, dispatching teams of brokers to scour neighborhoods and buy hundreds of homes a month.
But rather than resell the homes, the Blackstone Group is opting to become a landlord, renting the homes to tenants including foreclosed ex-homeowners burned by the housing crash.
Blackstone, one of the nation's largest private-equity firms, plans to buy as many as 15,000 homes in Tampa Bay over the next three years, many of them foreclosures, capitalizing on decimated home prices and growing rents.
The shopping spree, and those of half a dozen other big investment firms and hedge funds, could radically change the local home landscape, as big-money brokers compete with first-time buyers and mom-and-pop landlords over homes in tight supply.
"It's a land grab unlike anything we've ever seen," said Peter Murphy, CEO of Home Encounter, the largest manager of rental homes in Tampa Bay. "You're going to drive through parts of town and all of it is going to be institutionally owned."
But it's also a big gamble on a shift in the American psyche, away from home ownership and toward home renting: cheaper, easier and with less risk of financial ruin.
"Used to be a house appreciated value 3 percent every year. It was a great investment. Then everyone got burned," said PDC Group owner Nick Pavonetti, whose St. Petersburg-based firm is helping Blackstone buy homes.
"We're moving more toward a nation of renters," Pavonetti said, "and we want to provide a product to meet that demand."
Blackstone insists that the homes have at least three bedrooms, two bathrooms, less than 20 years of wear and tear and little need for repairs. Blackstone's most profitable sweet spot is between $100,000 and $175,000, Pavonetti said, though the firm is open to buying bigger and pricier if they smell a good deal.
"There's no upper limit. We can spend as much as we want," Pavonetti said. "If we've determined we want that house, we're going to be there, no matter what it takes."
Blackstone would install its own property manager and cover maintenance, taxes and insurance, Pavonetti said. He would not specify rental rates, but brokers seeking homes for other funds said rents would hover around 1 percent of the home's purchase price, or about $1,500 a month on a $150,000 home.
Blackstone brokers have begun distributing flyers offering cash-in-hand deals with quick turnarounds, "no lowball offers" and "no red tape." Many are working with local agents and banks to divine the choicest homes as soon, or even before, they hit the market.
But with nearly 200 homes already bought and another 700 deals under way, brokers still have a long way to go to meet projections. For scale, $1 billion could buy all of the 1,500 homes and condos sold in Pinellas County last month — four times over.
Unlike home prices and rents in large apartment complexes, single-family rents grew during the recession — a tantalizing offer for firms with investors hungry for good returns.
Single-family home rentals are a $3 trillion market, with 21 million homes drawing rents across the country, according to CoreLogic, a financial data firm.
And Florida, with its low prices compared to rental cash flow, represents some of the most fertile grounds for investors looking to tap into the foreclosure-to-rental market, which CoreLogic estimated could grow to $100 billion this year alone.
Most families who lost homes to foreclosure, Federal Reserve data shows, have turned to rental homes, either because they can't qualify for a new loan or because they feel gun-shy about buying again.
About 65 percent of Americans own a home, the lowest level since 1997, U.S. census figures show. Among the young, that rate is even lower: Only a third of Americans younger than 35 own their own home.
"I've been a broker for 30 years, and I have never seen more demand from the tenant side of the business," said Kevin Chadwick, who owns seven Keller Williams franchises across Tampa Bay.
"And typically, these are really great tenants. They used to be owners in a house. . . . They're used to taking care of their home. (Investors) love this situation."
Investors looking for steals have been a big part of the local market since prices dropped by 45 percent from the 2006 peak. But few are like Blackstone, the nation's biggest buyer of strip malls, suburban offices and other commercial real estate, including ownership of Hilton Hotels. Based in New York, the firm is bigger than Bain Capital, the spotlit private-equity firm once run by Republican presidential nominee Mitt Romney.
Blackstone is embroiled in fierce competition with firms like KKR and Waypoint Homes, diving deep into the same neighborhoods and looking for yearly profits of 8 to 12 percent. Blackstone is buying in Pinellas, Hillsborough, Pasco and Polk counties.
The competition is not just for rent checks.
Bankers are looking at bundling the future payments as trusts or securities to sell to investors, much like mortgages were pooled and sold during the housing boom.
Banks and mortgage giants are getting in on the growing rental market. Earlier this month, in its first bulk sale of foreclosures, Fannie Mae sold 699 Florida rental homes to a San Diego investment firm for nearly $80 million.
Families and first-time buyers stand little chance to compete. Firms like Blackstone don't need appraisals, don't mind waiting for short sales, and pay cash on the spot for homes they want.
The home investments are stoking uncertainty among real-estate agents, who are happy to see extra business but unclear on what happens when it ends.
"This might be an incredible solution to taking homes off the market, or it could put a big squeeze on our inventory," said Century 21 franchise owner Craig Beggins. "It's game changing. But I don't know which way."
Times staff writer Jeff Harrington contributed to this report. Contact Drew Harwell at (727) 893-8252 or dharwell@tampabay.com.
EDITOR'S NOTE: This follow-up report appeared in the Times on Sept. 22:
By Graham Brink
Times Business Editor
The Blackstone Group said Friday that it might buy homes in the Tampa Bay area and turn them into rentals, but that it will not be spending $1 billion here.
The response comes after the Tampa Bay Times published a story in Friday's newspaper saying that the private equity firm would spend $1 billion over the next three years in this area buying up to 15,000 homes, many of them foreclosures.
Blackstone and other large firms are opting to become landlords, capitalizing on decimated home prices, rising rents and an abundance of tenants, many burned by the housing bust.
Peter Rose, a spokesman for Blackstone, said publicly Friday that the Tampa Bay area is one of several metro areas it is looking at for buying properties. Rose told the South Florida Sun Sentinel that the firm has started acquiring homes "in a number of cities across the U.S.," but added that the amount of money spent in any one city would be a "tiny fraction" of $1 billion.
Rose did not return phone messages or an email from the Times on Friday.
The Times was told of the $1 billion amount and other details by Nick Pavonetti, owner of the St. Petersburg-based PDC Group, which was helping Blackstone buy homes.
The Times did not confirm the details with anyone at Blackstone's headquarters in New York City.
On Friday, Pavonetti said he had terminated his relationship with Blackstone.
"I don't want to get sued. I want to stay out of court," Pavonetti told the Times on Friday. "For that reason, it's best I don't address Blackstone directly."
Pavonetti confirmed that he spoke to Blackstone officials on Friday morning.
"We did not speak about the veracity of the numbers," he said. "We only talked about how I should have kept my mouth shut."
Blackstone oversees more than $190 billion in assets for public and corporate pension funds, academic and cultural and charitable organizations. It is the nation's biggest buyer of strip malls, suburban offices and other commercial real estate, including ownership of Hilton Hotels.
by the numbers
15,000
Number of homes Blackstone plans to buy in the Tampa Bay area over the next three years
Target homes: At least three bedrooms, two bathrooms, less than 20 years of wear and tear
Most profitable price point: Between $100,000 and $175,000
. Fast facts
Blackstone Group
• The private equity investment and advisory group began with a $400,000 balance sheet; now it oversees more than $190 billion in assets for public and corporate pension funds, academic, and cultural and charitable organizations.
• Founded in 1985 by Stephen A. Schwarzman, left, current chairman and chief executive officer, and Peter G. Peterson, who retired as senior chairman in 2008.
• Notable real estate investments: Equity Office Properties, Hilton Hotels Corp., La Quinta Inns & Suites and Wyndham Worldwide.
• Other notable current and former investments: Allied Waste, Houghton Mifflin, Legoland, Universal Studios Parks, Madame Tussauds, Travelport, the Weather Channel and SeaWorld Parks & Entertainment (parent of SeaWorld and Busch Gardens).
• Its portfolio companies employ more than 700,000 people around the world. If all its holdings and transactions were combined into a single company, it would rank No. 7 on the Fortune 500 list.
• Went public in 2007 (a $4 billion initial public offering) and is listed on the New York Stock Exchange under the ticker symbol BX.
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