BX Blackstone Inc

By Ryan Dezember 

Fannie Mae has agreed to backstop up to $1 billion in debt from the country's largest owner of single-family rental homes, the first time the government-sponsored entity has agreed to guarantee the debt of an institutional owner of single-family houses.

Blackstone Group LP's Invitation Homes Inc. disclosed its agreement with Fannie on Monday in a filing detailing the company's finances ahead of its planned initial public offering. After the foreclosure crisis, the New York investment firm spent roughly $10 billion buying and fixing up houses to rent through Invitation Homes.

Fannie Mae's involvement is a sign that it believes homeownership will remain out of reach for many Americans and that Wall Street's housing wager will be become a long-term business, not just an opportunistic trade made after the foreclosure crisis.

The support represents a shift from about four years ago, when Fannie's regulator blocked another government-sponsored entity from backing bulk buyers of foreclosed homes. Fannie's support will likely make it cheaper for buyers like Blackstone to add homes in the future.

Invitation said it secured commitments from Wells Fargo & Co. and Fannie on a 10-year loan secured by some of its 48,431 homes. Invitation, which is based in Dallas and owns properties in 13 metropolitan markets, said it would use the loan proceeds to repay older debt.

That debt was raised by selling bonds backed by rental revenue for bundles of specific homes. Invitation was the first to sell such bonds in 2013 and has been a major issuer since. In all, big investors have sold about $18.3 billion of rental-backed bonds, with about $16.8 billion of such debt outstanding, according to Kroll Bond Rating Agency Inc.

A Blackstone spokeswoman declined to comment. Invitation representatives didn't respond to requests for comment.

"Today, single-family homes account for more than 50% of the rental market, offering individuals and families access to good neighborhoods, schools, and employment centers," Fannie Mae told The Wall Street Journal. "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."

U.S. homeownership has declined since the housing crisis amid strict lending standards, mounting student debt and would-be buyers whose savings and credit were diminished by the recession. Last year, the homeownership rate reached its lowest levels in at least 50 years, according to U.S. Census data.

Competition from individual buyers is a risk to big home-rental businesses, especially now that foreclosure rates have returned to normal levels and many of their new purchases are made on the open market.

Fannie and its smaller sibling Freddie Mac don't issue mortgages. Rather, they buy mortgages issued by banks, bundle them and sell the debt, which they guarantee against default, to investors. Since 2008, they have been controlled by the U.S. government, which took control of the companies through a process known as conservatorship when the foreclosure crisis prompted concerns that they might fail and intensify the financial panic.

In 2012, the entities' regulator, the Federal Housing Finance Agency, blocked Freddie from financing investors who were buying up foreclosed homes in bulk amid concerns that Freddie's cheap debt would make it difficult for banks to compete on loans to the growing number of investors gobbling up foreclosed homes.

Much has changed since then. Beside the advent of the rental-backed bond market, two Invitation rivals -- American Homes 4 Rent and Colony Starwood Homes, the country's second- and third-largest single-family homeowners, respectively -- have gone public. Also, home prices have rebounded.

Fannie has long backstopped loans to the mom-and-pop landlords that have traditionally dominated the rental-home business. Fannie and Freddie also insure debt sold by institutional owners of multifamily housing, such as apartments.

Fannie's move should put big landlords like Blackstone on equal footing with such investors, said Dave Bragg, managing director of real estate research firm Green Street Advisors LLC.

On a call Monday morning with investors and Green Street analysts, Donald Mullen Jr., a former Goldman Sachs Group Inc. executive whose Pretium Partners LLC backs Progress Residential, owner of the fourth-largest pool of U.S. rental homes, said Fannie's agreement with Invitation is "overdue" and should put to rest skepticism over the staying power of the institutional rental-home business.

Lately, Mr. Mullen has been soliciting investors for another $1 billion to buy more houses to add to the 20,000 Progress already owns, The Wall Street Journal has reported.

"This is a great outcome not just because it obviously will reduce the cost of our financing but it puts a further stamp of approval on this industry," Mr. Mullen, who a decade ago oversaw Goldman's lucrative bet against the housing market, known as "the big short," said Monday.

Write to Ryan Dezember at ryan.dezember@wsj.com

(END) Dow Jones Newswires

January 24, 2017 09:18 ET (14:18 GMT)

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