Two big landlords announced Monday they plan to merge, creating a giant that controls more than 30,000 houses nationwide in markets, such as Atlanta, that were hit hard by the housing collapse.
Starwood Waypoint Residential Trust and Colony American Homes said they would combine in a stock transaction that is clearly a bet that renting will remain popular and profitable as the rate of home-ownership remains historically weak.
Rents have soared in cities such as Atlanta as more households rent rather than buy. Much of the attention on rising rents has focused on apartments – and apartment development has continued to boom in Atlanta and many other cities – but rents also have spiked in the single-family market.
It’s a phenomena driven by a litany of factors: rising housing costs, stagnant wages, student debt and other factors have stymied the rebound in home sales. Mortgage standards remain tight and many young adults’ ability to buy has been kneecapped by debt, a lack of savings and trouble finding career traction.
Starwood Waypoint CEO Barry Sternlicht said in a news release the merger will be “transformative” for his company and the single-family rental business.
“Combining two best-in-class teams, with a superior portfolio of homes in carefully selected geographic markets, positions us to deliver long-term capital appreciation for our shareholders while earning compelling current yields at or above those currently achievable in other major real estate asset classes,” he said.
Wall Street powerhouses like Sternlicht, CEO of Starwood Capital, bought up distressed homes during the Great Recession to create a new business model for rental housing, an industry better-known for being dominated by mom-and-pop operations.
Big name investors and opportunists rounded up homes by the thousands at cut-rate prices, fixed them up and returned them to the rental pool as many households began to recover from the poor economy. But many of those households lacked the credit or savings to buy.
The mom-and-pops still control the vast majority of single-family rental homes, but the Wall Street-backed model brought a scale to the business not previously seen.
“We believe this merger demonstrates the power of scale and consolidation and really crystallizes the long-term durability of the single-family rental industry,” Colony Chairman Thomas J. Barrack Jr. said in the release.
Sternlicht and Barrack will serve as co-chairmen of the combined company, which will have an asset value of $7.7 billion, according to the release.