Rising real estate prices and the desire for more space have created surging demand for single-family rental housing. But up to this point, most SFR rental homes have served middle- to upper-class Americans, overlooking the growing need for affordable housing for America's lower earners.
Blackstone Group (BX -3.95%) is about make an effort toward changing that, dedicating $1 billion through its Home Partners Program directly for affordable housing in single-family rentals. So why is this important, and how can investors benefit?
BREIT branches into affordable housing
Blackstone Group, one of the largest investment firms in the world, started a non-publicly traded REIT called the Blackstone Real Estate Income Trust (BREIT) back in 2016 to propel its growing presence in the global real estate market. Today, BREIT owns 2,226 properties valued at $78 billion across a wide range of asset classes, with 50% of its portfolio in residential housing.
In 2021, BREIT acquired Home Partners of America, which offers unique lease-purchase agreements as an entry point for homeownership to lower-income earners. The deal added more than 18,000 single-family homes to BREIT's portfolio. The Home Partners Program will be at the forefront of this new affordable housing initiative and will use a new program called "Choice Lease," which will operate in the same fashion as its lease-purchase program. However, it will be exclusively for households with income of less than 80% of area median income (AMI).
Through this program, tenants who may not be mortgage-ready can enter a lease-purchase contract, where Home Partners of America purchases the home, leasing it to the tenant for an agreed-upon term. Rental rates will be about 10% less than market rates for the area, and contracts will have an option for the tenant to purchase the home at a specified price at any point during the lease.
Will affordable housing help or hurt BREIT?
BREIT has been a huge success in the world of REITs, receiving billions of dollars in private investments each month since its inception. An investment firm of Blackstone's scale and expertise wouldn't double down on a business model that was failing. On the contrary, given that single-family housing makes up roughly half of its investment portfolio, it's a testament to how well its current operations are doing. BREIT also expanded its affordable housing portfolio in South Florida, but mostly in apartments.
There are very few providers offering access to affordable housing, particularly at an institutional scale. Mixed-income apartments are growing in popularity, but apartments usually only offer a small portion of total housing units per property for low-income families, and there are hardly any providers offering this in the single-family rental market.
Affordable housing is in high demand and extremely low supply, meaning this move is not just good news for renters and prospective homeowners but should provide steady demand for Blackstone for years to come.