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Blackstone Group Curbs Distressed Property Shopping Spree

Robert Ottone
Mar 14, 2014

The Blackstone Group, a private-equity firm that has recently been buying up foreclosed homes and renting them out to former distressed homeowners, has dialed-down their purchasing operation significantly. According to Bloomberg, Blackstone’s purchasing pace has slowed by around 70 percent since last year, when the firm was reportedly spending around $100 million per month on purchases of foreclosed/distressed homes. Blackstone has also narrowed its purchasing focus to only a handful of cities, including Tampa, Orlando, Seattle, Miami and Atlanta. The firm originally spent $8 billion since April 2012 by purchasing homes in 14 cities. “The institutional wave has passed,” said Blackstone’s Jonathan Gray, global head of real estate, to Bloomberg. “It’s at a much lower level than it was 12 or 24 months ago.” Part of Blackstone’s slowing pace could be due to other private-equity firms, hedge funds and trusts getting in on the action. Blackstone’s model is a tremendously successful one, even though the company hasn’t yet made public their 2013 fourth quarter report. "In an economic environment still deeply affected by the mortgage crisis, the surge in institutional purchases is a double-edged sword. On the one hand, those who would be forced to hold off on purchasing because of credit issues are now able to live in those homes as rental clients,” said Doc Compton, operations manager for Prevost and Shaff. “On the other hand, those who would be able to purchase can't, either because they've been outbid by the institutional investors, or because of the resultant inventory shortage, created by those same investors. Either way, there's an impact not only to the prospective homeowners, but also to all of the ancillary businesses associated with the real estate transactions, like inspectors, appraisers, mortgage brokers, and realtors." Foreclosures have also been slowing in recent months, with RealtyTrac indicating that year-to-year, February foreclosure rates have dipped nearly 30 percent. With less short sales and less foreclosures to snatch up, its simple numbers, Blackstone (and, to a lesser extent, these other firms, hedge funds and private equity institutions) have a shrinking pool of foreclosures to draw from. American Homes 4 Rent, for example, announced on March 5th at a conference in Florida that they had slowed their purchasing tremendously, as well. In a statement to Bloomberg, Jade Rahmani, an analyst for Keefe, Bruyette & Woods Inc., stated that the big investors are setting their sights on the bigger fish in this improving economy. “Home prices have increased, which narrows the acquisition opportunity,” Rahmani said. “In addition, these companies have done this for a certain amount of time and there are lessons learned.” Regional declines in short sales have impacted Blackstone’s purchasing of foreclosed and distressed homes in certain areas of the country. “Not everyone deserves to be a homeowner, but everyone deserves the opportunity to be a homeowner,” said John H. P. Hudson, vice president of regulatory affairs for Premier Nationwide Lending. “The broader national debate then becomes how we help moderate income consumers get access to affordable credit.”
Published
Mar 14, 2014
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