Monopoly: How the Major Players of Multifamily are Shaping Market Conditions and Why
Since the pandemic began, home prices have gone through the roof. In fact, in 2021 alone, home prices rose 19%. The rise in home prices is great for homeowners who are enjoying watching their homes appreciate in value significantly over time. However, it is pricing many would-be homeowners out of the market.
There are a number of reasons why home prices have been skyrocketing during the pandemic. The first is that interest rates dropped significantly at the beginning of the pandemic and remain low. So, it is easier to get a mortgage. Lower mortgage rates incentivized a lot of people to buy homes. Also, labor shortages, supply chain problems, and fewer senior citizens moving out of their homes to nursing homes due to COVID has compounded the problem.
Additionally, there is one other major factor that is contributing to the steady rise of home prices: major players such as Blackstone are buying real estate left and right, capitalizing on the upward movement of real estate prices. Massive buying on the part of these major players puts further upward pressure on real estate prices and greatly impacts supply vs demand.
With a market capitalization of roughly $86 billion, Blackstone is one of the largest players in the real estate industry. So, when it makes moves, it can impact the entire real estate sector. In 2012, Blackstone created “Invitation Homes” in order to purchase large amounts of foreclosed single-family homes during the 2008 financial crisis. At the height of this buying period, Blackstone was buying more than $100 million in homes per week. Blackstone would eventually go on to make a roughly $7 billion profit when it cashed out on this investment in 2019.
Blackstone has re-entered the single-family real estate market due to the significant rising of home prices caused by the pandemic. Last year, through its non-traded REIT, Blackstone made a $300 million preferred equity investment in Tricon Residential, a massive owner and operator of single and multifamily rental properties in North America.
Ninety percent of the roughly 30,000 properties owned by Tricon are located in the Sunbelt region of America, which includes states like Texas, Florida, and California. Many people switched to remote work throughout the pandemic and have been moving to these states to avoid cold winters. On top of its original $300 million investment in Tricon, Blackstone is now investing an additional $45 million in Tricon, which will give Blackstone a roughly 12% stake in the company.
There are a number of reasons why Blackstone is making this move. The first is that the pandemic is driving home and rental prices upward. The second is that the new remote work culture allows people to move to warmer, sunnier states as they please as mentioned above, and there is also demand for single-family home rentals which provide more space than apartments. A lot of people who want to live in homes cannot currently afford to buy them, so renting them is the next best option.
Single-family rentals are up 5.3% in the last year, which is the highest increase in about 15 years. This is a trend that Blackstone is planning to capitalize on. The fact that home builders are struggling to keep up with demand for new homes will add fuel to the fire and help home and rental prices to increase even further. In addition, this will also force many into a long-term renting lifestyle, which directly benefits both Blackstone’s single-family homes portfolio, as well as their multifamily portfolio. If there are simply not enough houses for sale, people will remain renters indefinitely.
Many large firms like Blackstone are also betting that the remote work trend will continue and are looking for alternatives to commercial real estate including shopping malls, which have been hard-hit by the pandemic. Single-family homes, as well as multifamily, are also a good way for financial institutions to hedge against inflation which appears to be getting significantly worse as the pandemic and accompanying money printing goes on. In fact, inflation rates for the CPI recently hit 6.2%, which is the highest rate of the past 30 years.
So, essentially, there are many reasons why large institutions are getting heavily involved in the single-family rental market and are buying up as many homes as they can. Blackstone is just one large corporation that is competing to buy up thousands of homes. There are many others including Invesco Real Estate, Allianz Real Estate, and private equity group, Centerbridge, just to name a few. For example, Allianz Real Estate and Centerbridge are planning to buy $4 billion worth of single-family homes in America in the near future.
What Does This Mean for Investors, Homeowners, Renters, and the Industry at Large
The fact that so many large corporations are using real estate as an investment vehicle to hedge against inflation, reduce taxes, and a way to diversify their holdings, just shows how profitable and strategic real estate investing is. The saying “home prices always go up in America” has largely been proven to be true and this latest real estate buying spree by corporations is just further proof.
Steadily rising real estate prices are not just good for corporations, however. It is also good for individual real estate investors and small-to-midsize companies who are interested in investing in real estate. So, if you or your business want(s) to invest in real estate, then it would appear that now would be a very good time to do so. That is, until homebuilders can produce homes at a rate that is higher than demand. This is unlikely to happen any time soon.
Homeowners will also benefit by rising real estate prices as they can simply sit back and watch the value of their homes rise and rise. So, many stakeholders in the real estate industry will benefit from rising prices.
If you are interested in investing in real estate, then you don’t have to go it alone. Here at Blue-Lake Capital, we partner with accredited investors to grow their wealth through strategic, large multifamily investments. There is no reason why major players, and “average Joe’s” alike, cannot benefit from the highly favorable real estate investing market. If you are interested in learning more, feel free to get in touch with us today.
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About the Author
Ellie is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don’t have access to.
A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.
Ellie is the host of REady2Scale, a podcast that highlights the assets, processes, and strategies for the multiple approaches to successful real estate investing.
She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can read more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.