US Prop Mkt

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Titanic changing course...

Blackstone Selling 1,300 Atlanta Houses in Strategy Shift
by Heather PerlbergJohn Gittelsohn
July 13, 2015 — 5:01 PM SGT Updated on July 13, 2015 — 10:16 PM SGT

Blackstone Group LP’s Invitation Homes, after spending more than $9 billion in a U.S. property-buying spree, is starting to sell some houses as it shifts focus from rapid expansion to fine-tuning its holdings.
The housing landlord has agreed to sell about 1,300 Atlanta-area residences that don’t fit its strategy, which targets communities with higher rents and quality schools, according to Chief Executive Officer John Bartling. The transaction would be the biggest bulk sale for the 3-year-old company, the largest U.S. owner of single-family homes.
“It’s that stage in our lives where we’re now in a position of looking at dispositions as an active part of portfolio balance,” Bartling said in an interview. “You should expect us to sell 5 percent of our portfolio every year.”
Blackstone led private equity firms, hedge funds and other large investors in buying thousands of houses after the real estate crash, creating a new asset class of single-family rentals. With the market recovering, landlords are seeking ways to increase profitability by raising rents and making operations more efficient. For Invitation Homes, paring its portfolio may also help it in preparation for a potential initial public offering, which Blackstone has said it could be ready for in the next two years.
Bartling declined to comment on any IPO plans. He also declined to disclose the sale price of the Atlanta-area residences or the buyer, citing a nondisclosure agreement. Invitation Homes, which is still continuously buying houses, will own about 48,000 properties after the deal, he said.
Lower Value
Most of the Atlanta houses in the sale are worth less than the typical Blackstone-owned home. The average cost per property in Invitations Homes’ most recent securitization was $203,588, including renovations, according to a Morningstar Inc. report last month. About 13 percent of those houses were in Atlanta, the most of any market.
Lower-value properties tend to have higher vacancy, turnover and capital spending rates, according to Brian Grow, managing director in the credit-ratings unit of Morningstar.
“The lower-value properties are much higher touch,” Grow said. “If you own a huge portfolio nationwide and you want consistency on how you manage the properties and you don’t want as high touch, I think the higher-value properties can be beneficial.”
Still Buying
Invitation Homes is spending about $20 million to $25 million a week buying properties -- down from more than $100 million in 2013 -- with a focus on the West Coast and Southeast. The firm sees opportunities to acquire more houses from smaller operators cashing out, Bartling said. It also is considering offering rent-to-own programs or future financing options for tenants who will eventually become homeowners, he said.
Shares of publicly traded single-family landlords have trailed apartment companies as investors remain wary about the costs of running scattered-site rental properties. Landlords need hundreds, if not thousands, of homes in a market to achieve the scale needed for efficient management. That’s pushed smaller and mid-size owners to sell.
Starwood Waypoint Residential Trust is selling as much as 5 percent of its roughly 12,000 homes, “pruning and optimizing our single-family portfolio,” Douglas Brien, CEO of the Oakland, California-based landlord, said on a May conference call.
‘Very Selective’
Purchases by institutional investors -- those who acquired at least 10 rental properties over the previous 12 months -- fell to 2.4 percent of single-family home sales in May, the lowest in records dating to early 2000, according to RealtyTrac.
Five companies competed for Blackstone’s Atlanta deal, including some that didn’t have existing landlord businesses, according to Bartling.
“We were very selective,” he said of choosing the buyer. “Since these are leased homes, we made sure they would honor our leases.”
Blackstone bought most of the houses it’s selling in 2013 from BLT Homes, a rental company owned by Building & Land Technology, in the industry’s then-largest bulk transaction.
About 16 percent of the homes were leased to tenants with Housing Choice Vouchers, also known as Section 8 vouchers, which subsidize housing for low-income renters. Not all of Invitation Homes’ Atlanta properties occupied by renters with vouchers are included in the sale, and the landlord continues to accept Section 8 tenants, according to the company.
This year, BLT Homes sold more than 5,500 homes in the Midwest and Southeast in two bulk deals to Cerberus Capital Management and Tricon Capital Group Inc., exiting the landlord business it started in 2012.
“We continue to think we are just in the early stages of consolidation here,” Bartling said.
US retailers facing calls to sell land

US retailers are coming under renewed pressure to cash in on their real estate as property values soar. But the approach has a mixed track record and poses risks at a time when chains are rapidly retooling their stores to support online operations.

Macy’s is the latest to wrestle with the option. The department-store chain is facing pressure from activist investor Starboard Value to spin off its property, a move the fund, which hasn’t disclosed the size of its Macy’s investment, thinks could boost shares in Macy’s by more than 70 per cent. The retailer has said it is evaluating spin-offs and other property moves.

Companies from Target to Dillard’s have resisted similar pressures in the past. The concern is that selling stores to a separate entity and leasing them back would saddle retailers with debt-like rent payments and limit their ability to adapt to changing market conditions.

Mervyn’s offers a cautionary tale. After taking the middle-market department store through a buyout, the chain’s new private-equity owners split it into an operating company and a property company. The latter raised rents just as the economy teetered into recession. The company went out of business in 2008.

“We’ve looked at sale/leasebacks for 30 years, and it’s always come out the same way,” said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment-banking firm. “The retailer gets a bundle of money upfront, but then they’ve saddled themselves with increased costs forever.”

Macy’s executives have weighed the pros and cons of such deals over the years and come to similar conclusions. But recent financial engineering is prompting investors and the company to take another look.

Hudson’s Bay, which owns a chain of Canadian department stores as well as Saks Fifth Avenue, created two joint ventures with mall owners Simon Property Group and RioCan Real ­Estate Investment Trust to hold real estate valued at about $US3 billion. Shares of Hudson’s Bay have climbed 24 per cent since the deal was announced in late February.

At the time of the deal, Hudson’s Bay retained an 80 per cent stake in the ventures, which gives it a measure of control and a big share of the rent payments.
It's always a good idea to own the property to have control to its cost. Especially so in prime areas with freehold properties and when interest rates are low. The ability to control cost is what sets a successful business from a mediocre one. Selling property to raise cash is never a good idea unless it is to fund something with great potential. Renting long term is also never a good idea. In Singapore, you see shops/offices moving about all the time due to increase in rental, which greatly disrupts business.
Housing's On Fire... Literally: Burned-Out Boston Home Selling 'As Is' For $400K
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