The Link between Credit Growth and Real Estate Bubbles
February 12, 2025
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During the year 2008, America was reeling from a real estate crisis. This crisis was so severe that it had thrown the entire financial system in disarray. It had also caused the real estate prices to plummet. The prices were at a record low. The price of the average house in America was 40% below the peak rate which was quoted in 2007, i.e., just before the crisis.
The situation had caught the attention of many financial bigwigs. Warren Buffet had stated that he was willing to make a $50 billion investment in the residential real estate. However, it did not materialize. This did not stop another investment corporation with deep pockets from joining the fray.
Blackstone Group is a private equity giant. They are capable of raising and deploying billions of dollars if they see a suitable opportunity. That is exactly what they did when they formed Invitation Homes LLC. The sole purpose of creating this corporation was to acquire real estate at below market levels and then rent them out. In essence, Blackstone LLC was becoming a landlord and a very large and powerful one.
In this article, we will analyze the invitation homes story and how it transformed the rental market in America.
Blackstone funded Invitation group is a vertically integrated company. This means that even though the company is in the leasing business, the company has significant capabilities in acquiring, repairing, maintaining and managing residential properties.
Invitation Homes has acquired more than 50,000 homes in America. Most of the acquisitions have been made in states like Florida and California where there is a high level of industrial and commercial activity. The company had made a total investment of $10 billion. However, Blackstone itself has only invested $2 billion with the rest being raised from banks and other financial corporations.
In 2017, Invitation Homes listed their shares on the stock exchange. 27% stake was sold for $1.55 billion. As a result, 100% stake was valued at close to $6 billion. Blackstone had therefore created shareholder value to the tune of $4 billion within four years.
Let’s understand the mechanics of the business model which allowed Invitation Homes to achieve this remarkable feat.
To sum it up, Invitation Homes LLC used an innovative business model to benefit even when the real estate market was failing. Similar models need to be used in countries like China, India, Canada and United Kingdom which are also facing a housing crisis.
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