The government-backed agency, Fannie Mae, announced that it is going to get into the single-family rental business in a big way. Fannie Mae announced that it will be going into business with private equity giant and major housing player Blackstone by backing $1 billion in debt.
Blackstone’s Invitation Homes filed for an initial public offering this week. The company is looking to raise $1.6 billion by selling shares to the public.
Fannie Mae, currently under government conservatorship, will back $1 billion in debt. Fannie Mae will back the company by collateralized rental homes owned by Blackstone.
Blackstone’s Invitation Homes currently has a portfolio of about 50,000 single family rental homes. Most of the homes in their portfolio were purchased during the foreclosure crisis. In the filing, the company reported $9.7 billion in property and $7.7 billion in debt. The homes are low risk with very low loan-to-ratios, according to sources of CNBC. This debt deal is the first of its kind.
“This transaction is a great opportunity to continue to serve the growing single-family rental market,” according to a statement from Fannie Mae. “Invitation Homes is a strong partner with deep experience managing a large volume of single-family rental properties. This transaction helps us gather data and test the market to ensure we are delivering the right solutions that meet the increasing demand for single-family rental housing across all demographics. Fannie Mae is committed to continuously finding better ways to meet the changing needs of families, whether that is through rental options or homeownership.”
As a part of the deal, Blackstone’s Invitation Homes is in first-loss position for the first 5 percent of any loss, after that, Fannie Mae and Wells Fargo are in a risk-sharing partnership.
“Blackstone is a market-leader when it comes to securitization innovation. Other corporate landlords will soon jump on this bandwagon, and demand for rental properties will rise,” wrote Andrew Roalstad, senior analyst at TIS Group.
“We predict the increase in these type of government-guaranteed securities will grow exponentially in the coming four years, and the impact on the rental property market will be extraordinary,” added Roalstad. “We suspect these are the types of changes that the market is pricing in with its ‘Trump Rally.’ Shifting corporate risk to taxpayers has been a profitable business over the past few decades, and throughout history. We expect we will see more of this shift in the coming years.”