iBuyers are fueling Wall Street’s rental takeover

Homebuying startups that offer a quick sale to antsy sellers are helping fuel the steady incursion of mammoth investors into the single-family rental market.

Startups such as Opendoor and Offerpad, so-called “iBuyers” that use technology to quickly buy and resell homes, are increasingly snapping up and flipping homes to firms such as Invitation Homes — which then convert the properties into single-family rentals, according to a new analysis by Attom Data Solutions.

The trend underscores how the lines between iBuyers and institutional single-family rental investors are beginning to blur, with the rental giants either funding iBuyers or launching their own — all with the backing of deep-pocketed private equity firms.

Opendoor and Offerpad, two leading iBuyers, sold 1 out of 10 of their homes to institutional single-family rental investors so far this year. The top three purchasers were linked to Cerberus, a private equity firm that manages 18,000 rentals through FirstKey Homes; Invitation Homes, a company that owns 80,000 rentals and is controlled by the King Kong of alternative asset managers, Blackstone; and Tricon American Homes, which boasts a portfolio of 17,000 homes.

So far this year, Opendoor and Offerpad have sold 743 homes to institutional investors, out of a total of 7,777 total resales. These transactions are accounting for a growing share of the iBuyers’ total sales, representing 9.6 percent of their total sales this year, up from 6.6 percent in 2017 and 3.9 percent in 2016.

The trend portends a future where iBuyers serve as vacuum cleaners for gargantuan rental investors, helping the Wall Street titans that back those investors further expand their footprint in the housing market.

Institutional investors’ share of total home purchases fell to 2.3 percent of all sales, down from 2.9 percent in 2017 and a peak of 7.4 percent in 2012, according to Attom Data Solutions. But some of them have recently raised mounds of additional cash to go on new buying sprees, suggesting they could soon become a larger factor in the sales market.

“I would expect it to go up at some point given all this money being thrown at the SFR [single-family rental] space, but I think finding inventory is truly a challenge, which is why these buyers are going to iBuyers,” Daren Blomquist, senior vice president of communications at Attom Data Solutions, told Inman.

Gary Beasley, CEO of Roofstock, an online marketplace for tenant-occupied single-family rentals, added in a statement on the analysis that, “A properly priced rental home today, there is almost limitless demand for it.”

“We have to get creative about how to attract this inventory, and if it isn’t available, to create it,” he added.

The Attom Data Solutions analysis shows that Opendoor continues to strengthen a mutually beneficial relationship with Blackstone, offering one of the clearest examples of how private equity firms — and the rental investors they stand behind — are becoming deeply intertwined with iBuyers. A Blackstone affiliate was one of the first lenders to Opendoor, while Blackstone’s Invitation Homes also participated in one of Opendoor’s most recent funding rounds. Now, it’s evident that, in addition to having just acquired a stake in Opendoor, Invitation Homes is purchasing many of the iBuyer’s homes.

While Blackstone shows one way that private equity companies are joining the iBuyer party, Amherst Holdings — which has a subsidiary, Amherst Residential, that manages 20,000 single-family units — recently demonstrated another way for private equity managers to get in on the action.

Rather than merely backing iBuyers or sourcing single-family rental inventory from iBuyers, Amherst Residential recently launched its own iBuyer, Bungalo — armed with $ 1 billion to flip homes. It’s also worth noting that Offerpad, perhaps Opendoor’s largest rival, is itself essentially the project of a single private equity firm, LL Funds.

Roofstock, a marketplace that allows investors to buy and sell tenant-occupied single-family rentals online, illustrates another example of a close bond between an iBuyer and the single-family rental industry.

Opendoor CEO Eric Wu and Khosla Ventures, perhaps Opendoor’s biggest venture capital backer, have both invested in Roofstock, offering the two influence over Roofstock’s direction.

If it hasn’t already, Opendoor could leverage Roofstock to sell its homes. It also seems possible that Opendoor might choose to acquire Roofstock one day, given the synergies between the two and the fact that they share mutual investors.

The deepening connections between iBuyers and private equity firms are important because the private equity industry has access to virtually unlimited amounts of capital and footholds in various facets of the real estate industry, including mortgage lending, not just single-family rentals.

These asset managers hold the potential to rocket iBuying into the mainstream much faster than were iBuyers to rely on venture capital funding alone.

Email Teke Wiggin.

Inman