One of America’s biggest landlords is teaming up with an insurance company, a global investment company and a Texas pension fund to buy $5 billion of U.S. houses to turn into rentals.
Tricon Residential Inc.,
a Toronto company that operates one of the largest pools of U.S. rental homes, said it has struck a home-buying pact with the Teacher Retirement System of Texas, Pacific Life Insurance Co. and one of the company’s existing foreign investors, which it declined to name.
The parties will together contribute up to $1.55 billion in cash, which will be combined with debt to give the venture purchasing power of about $5 billion. Tricon, which operates about 25,000 U.S. rental homes as well as several apartment complexes in the U.S. and Canada, said it expects to be able to buy about 18,000 houses through the new venture.
The deal suggests that signs of a slowdown in the red-hot residential real-estate market haven’t diminished the allure of rental homes among big investors, who have become major forces in many of the country’s hottest markets.
“We get 6,000 calls a week for a home and we’ve only got 200 available,” Tricon Chief Executive
said in an interview. “We want to take advantage of that demand.”
Home prices have surged to levels that are straining affordability for many house hunters. Rents for single-family homes have largely kept pace, preserving much of the healthy margins to which yield-starved investors have grown accustomed since diving into the rental business a decade ago.
Tricon, as well as rivals
American Homes 4 Rent
Invitation Homes Inc.
, have reported record occupancy and rents since last year’s lockdown, when the pandemic sparked a rush for spacious suburban living.
These companies and other big investors were originally attracted to single-family homes at the depths of the 2008 housing bust, when foreclosed properties could be bought at steep discounts and by the thousand. With little competition from regular buyers, investors dominated the market for a few years, setting a floor for falling prices around the Sunbelt cities where they have been concentrated.
They kept buying on the open market once the flood of foreclosures subsided, offering all cash and not quibbling about ugly carpet or paint colors. When Covid-19 hit and demand for suburban rentals shot up, they ramped up their purchasing with billions of dollars from institutional investors seeking investment income. Now, in many of the hottest markets, including Phoenix, Miami and Houston, more than one in five houses sold is being bought by an investor.
“The competition is probably as intense as we’ve ever seen it to buy a home,” Mr. Berman said. Yet rising rents, as well as the sheer number of homes that sell every year in the busy Sunbelt markets where Tricon operates, have kept the business of buying, sprucing up and renting out houses profitable and enticing for big investors like pensions and sovereign-wealth funds, he said. Tricon says new lease rates in April were up 16% from a year earlier, and renewals rose 4.4%.
Mr. Berman said Tricon is looking to pay about $250,000 a home, and plans to spend $25,000 on closing costs and renovations at each property.
Unlike larger competitors
American Homes 4 Rent
which focus on households earning more than $100,000 a year, Tricon tries to find houses to rent to people earning between $60,000 and $100,000. The firm believes that such renters are more likely to be long-term tenants, which means lower turnover costs and steady cash flow.
Tricon expects to buy about 6,000 houses annually for the next three years. Those, along with thousands of other houses that the firm is constructing and buying directly from builders, will give the firm about 50,000 homes in 2024.
Write to Ryan Dezember at email@example.com
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