The Blackstone Group L.P. (NYSE:BX) is following a competitor’s cue and is planning to lend to smaller investment buyers in the single family home market. That could be a nice addition to its massive portfolio, but also suggests there’s still upside in the nascent single-family home sector.
One of the main hallmarks of the 2007 to 2009 recession and subsequent slow recovery has been a conservative shift by banks. Although they have money to lend, they have become increasingly stringent about who they lend to. That’s locked many landlords out of the market for buying homes because they can’t get access to capital.
Cerberus stepped into that market a couple of months ago, acting as the lender. It’s an interesting and likely less risky approach to the sector, since lenders don’t have to fix up, maintain, and manage the properties, they just collect interest on their loans. And, with banks out of the picture, there’s little competition on loan rates giving Cerberus the upper hand on pricing.
The Blackstone Group L.P. (NYSE:BX) has been building its single-family home business quickly. It now has over 30,000 homes. With so many homes and an aggressive approach, it makes sense that it would copycat Cerberus. In fact, with home prices heading higher, this is a logical business shift for the financial giant. It allows it to continue to participate in the industry without taking on the risk of overpaying for homes.
The Blackstone Group L.P. (NYSE:BX)’s top-line has more than doubled since the end of the recession. It’s structured as a limited partnership, so its finances can be complicated. However, it’s an industry leader in the asset management space and should continue to reward shareholders with notable distributions so long as the markets hold up.
A recent yield of around 3.9% should interest more aggressive income investors looking to participate in the single family home market. That said, the company is widely diversified, so it definitely isn’t a direct play on this emerging space.
Another Debt Player
At the end of the first quarter the company owned just over $400,000 worth of real estate and about $85 million of mortgage debt. That makes it look more like a mortgage REIT right now, but that should change over time as it works through the debt.