Institutional Investors Eye the Residential Real Estate Market

Blackstone and KKR Bet on Residential Real Estate

Major real estate investors including Blackstone (BX) and KKR (KKR) are investing in the residential real estate market, buying up a massive amount of existing homes during a time of record demand.

Commercial real estate took a major hit during the pandemic with malls and office buildings shuttered amid restrictions. Most residential tenants were able to make their monthly payments. But according to one estimate, investing in US single-family homes yields annual returns of 6.6%—higher than 6.3% for commercial property investments.

Buying to Rent

Blackstone has been active in the residential real estate market in recent weeks. Its REIT just spent $5.1 billion to purchase a portfolio of apartments from American International Group (AIG). In June it spent $6 billion to acquire Home Partners of America which owns 17,000 homes across the United States. The company offers renters the option to buy. Meanwhile KKR recently launched a new unit focused on buying homes to rent.

While investors already own 55% of the rental home supply in the US, largely through condos, they have little stake in single-family homes. Of the single-family homes available to rent, only 2% are owned by institutional investors.

Backlash May Mount

Blackstone, KKR, and other institutional investors buying up single-family homes risk facing backlash from politicians and advocates. Inventory for existing homes is extremely tight, driving up the prices and shutting many buyers out of the market. If that becomes more difficult because of big investors, it could create a public relations nightmare and prompt government intervention.

With demand for homes not expected to slow any time soon, institutional investors see an opportunity to make money. If has an impact on supply, don’t be surprised if politicians and advocates cry foul.

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