Invitation Homes Eyes Next 80,000 Houses as Suburbs Boom

(Bloomberg) -- It was a good quarter for the suburbs.

Invitation Homes Inc., the largest U.S. single-family landlord with roughly 80,000 houses, posted higher occupancy rates and revenue that beat estimates as renters decided that life during the pandemic is better with extra rooms and a backyard.

Now, Invitation Homes is buying houses at a time when low mortgage rates and the desire for more space has placed suburban houses in high demand, even as the Covid-19 pandemic roils the economy and pushes millions of renters to the brink.

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“You have to think through how you're going to operate, how you're going to measure risk, and whether you're prepared for Covid responses,” Chief Executive Officer Dallas Tanner said in an interview. “The fortunate thing for our business is that housing fundamentals are spectacular in the U.S. right now.”

Beating Apartments

The company's shares gained as much as 1.9% on Tuesday to the highest level since March 5. The stock has surged 84% since the market hit a low March 23, compared with a 21% rise in a Bloomberg index of real estate investment trusts that own apartments. That comes as investors bet the pandemic will drive Americans out of dense cities in search of space to spread out.

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Invitation Homes, which spent two years pruning its portfolio following a 2017 merger, is turning to growth. It raised $448 million through a June share sale, and plans to use two-thirds of that primarily to buy homes.

“We can certainly handle much more scale on our platform,” Tanner said. “Is that two times our current footprint? Maybe.”

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The company was born out of the U.S. foreclosure crisis, a leader among Wall Street-backed firms that bought homes at heavy discounts and figured out how to operate them profitably. Blackstone Group Inc. cashed out its stake in the company last year, netting billions in profits. Firms including JPMorgan Chase & Co. and Brookfield Asset Management Inc. have made new bets on rental houses in recent months.

Tough Market

Finding another 80,000 homes to buy won't be easy. A federal foreclosure moratorium passed by Congress as part of the pandemic relief effort means there are few distressed properties on the market.

Since resuming purchases in June, Invitation Homes has focused on Phoenix, Seattle and other metropolitan areas that were growing before the pandemic. It has avoided Las Vegas and Orlando, Florida, where the local economies rely heavily on the battered tourism industry.

The company has narrowed its focus to suburbs closer to the city center in a total of 16 markets. It has bought houses from builders, as well as an emerging class of companies called iBuyers. It's also developing a plan to buy homes and rent them back to sellers.

For the most part, though, it bids on homes as they hit the market, competing with first-time homebuyers and other single-family landlords.

“Investors of all sizes are really active, and everyone is after the same thing,” said Greg Rand, chief strategy officer at Renters Warehouse, which helps investors buy and manage rental homes. “The result is that the market for entry-level housing is super tight.”

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