Cerberus Capital Management is buying about 4,200 U.S. houses, expanding its foray into home rentals in the industry’s largest bulk purchase.
The investment firm plans to acquire the properties from BLT Homes, a rental company owned by closely held Building & Land Technology, according to three people with knowledge of the transaction. The houses are mostly in Midwest cities such as Indianapolis and Chicago, as well as in Florida, said the people, who asked not to be named because the deal is private.
The purchase will make Cerberus one of the top 10 owners of U.S. houses as the institutional rental industry built from the housing crisis consolidates. Large landlords are seeking economies of scale by acquiring bulk portfolios, while smaller companies are taking advantage of gains in real estate values to sell as it gets harder to compete.
“Everything that I hear and see in the market points to this wave of consolidation happening,” said Jack Micenko, an analyst with Susquehanna International Group LLP who covers single-family real estate investment trusts. “We keep hearing the bid-ask spread is narrowing. Seller expectations are getting more reasonable.”
John Dillard, a Cerberus spokesman, declined to comment, as did Eric Waters, a spokesman for BLT.
Cerberus, with about $25 billion under management, became a landlord this year when it acquired Five Ten Capital, a company with more than 1,500 houses. The New York-based firm entered the industry more than two years later than Wall Street peers such as Blackstone Group LP and Colony Capital Inc., who started buying when home values were depressed in 2012 and went on to build national businesses to manage the scattered properties.
Home prices have gained about 25 percent nationally since early 2012 and both equity and securitization markets have opened up to the largest operators, helping them expand and providing leverage to increase returns on their investments.
The Cerberus transaction will leave BLT, which started buying in 2012, without any properties of its own. Earlier this year, the firm sold 1,385 homes to Tricon Capital Group Inc. It sold about 1,400 Atlanta properties to Blackstone in 2013.
The houses being sold to Cerberus are in Indianapolis; St. Louis; Kansas City, Missouri; Chicago; Memphis, Tennessee; and Florida, said the people with knowledge of the matter.
Some of the BLT houses Cerberus is buying are occupied by tenants with Section 8 vouchers from the U.S. government’s housing-assistance program, two of the people said. Section 8 vouchers are generally for families who earn less than 50 percent of a metro area’s median income, according to the U.S. Housing and Urban Development Department.
BLT Homes monthly rents in Chicago range from $575 to $1,550, according to properties listed as available on its website.
Cerberus already had a multimillion-dollar bet on home rentals through its FirstKey Holdings unit, which lends to the smaller landlords who make up the majority of the market and have limited ability to finance their home purchases.
Other large bulk deals in the home-rental industry include Silver Bay Realty Trust Corp.’s purchase of almost 2,400 houses from The American Home for $263 million in April. American Homes 4 Rent, the largest publicly traded U.S. single-family landlord, in July 2014 bought more than 1,300 properties from Beazer Pre-Owned Rental Homes Inc. for about $263 million in debt and equity.