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Blackstone's billion to buy homes@

Associated Press Published: September 21, 2012
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BY DREW HARWELL

c.2012 Tampa Bay Times@

A Wall Street behemoth plans to spend $1 billion on Tampa Bay's hobbled housing market, dispatching teams of brokers to scour neighborhoods and buy hundreds of homes a month.

But rather than resell the homes, the Blackstone Group is opting to become a landlord, renting the homes to tenants including foreclosed ex-homeowners burned by the housing crash.

Blackstone, one of the nation's largest private-equity firms, plans to buy as many as 15,000 homes in Tampa Bay over the next three years, many of them foreclosures, capitalizing on decimated home prices and growing rents.

The shopping spree, and those of half a dozen other big investment firms and hedge funds, could radically change the local home landscape, as big-money brokers compete with first-time buyers and mom-and-pop landlords over homes in tight supply.

"It's a land grab unlike anything we've ever seen," said Peter Murphy, CEO of Home Encounter, the largest manager of rental homes in Tampa Bay. "You're going to drive through parts of town and all of it is going to be institutionally owned."

But it's also a big gamble on a shift in the American psyche, away from home ownership and toward home renting: cheaper, easier and with less risk of financial ruin.

"Used to be a house appreciated value 3 percent every year. It was a great investment. Then everyone got burned," said PDC Group owner Nick Pavonetti, whose St. Petersburg-based firm is helping Blackstone buy homes.

"We're moving more toward a nation of renters," Pavonetti said, "and we want to provide a product to meet that demand."

Blackstone insists that the homes have at least three bedrooms, two bathrooms, less than 20 years of wear and tear and little need for repairs. Blackstone's most profitable sweet spot is between $100,000 and $175,000, Pavonetti said, though the firm is open to buying bigger and pricier if they smell a good deal.

"There's no upper limit. We can spend as much as we want," Pavonetti said. "If we've determined we want that house, we're going to be there, no matter what it takes."

Blackstone would install its own property manager and cover maintenance, taxes and insurance, Pavonetti said. He would not specify rental rates, but brokers seeking homes for other funds said rents would hover around 1 percent of the home's purchase price, or about $1,500 a month on a $150,000 home.

Blackstone brokers have begun distributing flyers offering cash-in-hand deals with quick turnarounds, "no lowball offers" and "no red tape." Many are working with local agents and banks to divine the choicest homes as soon, or even before, they hit the market.

But with nearly 200 homes already bought and another 700 deals under way, brokers still have a long way to go to meet projections. For scale, $1 billion could buy all of the 1,500 homes and condos sold in Pinellas County last month — four times over.

Unlike home prices and rents in large apartment complexes, single-family rents grew during the recession — a tantalizing offer for firms with investors hungry for good returns.

Single-family home rentals are a $3 trillion market, with 21 million homes drawing rents across the country, according to CoreLogic, a financial data firm.

And Florida, with its low prices compared to rental cash flow, represents some of the most fertile grounds for investors looking to tap into the foreclosure-to-rental market, which CoreLogic estimated could grow to $100 billion this year alone.

Most families who lost homes to foreclosure, Federal Reserve data shows, have turned to rental homes, either because they can't qualify for a new loan or because they feel gun-shy about buying again.

About 65 percent of Americans own a home, the lowest level since 1997, U.S. census figures show. Among the young, that rate is even lower: Only a third of Americans younger than 35 own their own home.

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