Freddie Mac Joins Rental-Home Boom
Freddie Mac is expanding its role in financing one of Wall Street’s postcrisis success stories: the booming business of investing in single-family rental houses. Freddie Mac Joins Rental-Home Boom
Freddie Mac is expanding its role in financing one of Wall Street’s postcrisis success stories: the booming business of investing in single-family rental houses.
The government-backed mortgage-financing firm this month guaranteed a $509 million loan that helped Front Yard Residential Corp. , an acquirer of rental homes, buy a rival. It also backed a $7.8 million loan that enabled Promise Homes Co., a midsize Atlanta landlord, to buy 117 houses in Southeastern working-class neighborhoods.
The McLean, Va., company already is the country’s largest backer of apartment loans. The deals announced this month are part of its push to finance more rental-home purchases as investors are eager to put money to work in rental markets and as growth in the firm’s traditional single-family home-mortgage business has slowed. Investors said the move could help fuel the rental boom by keeping a lid on costs at a time when U.S. interest rates are broadly expected to rise.
“Having Freddie in the business will bring down the cost of capital over time,” said Beth O’Brien, chief executive of CoreVest Finance, which lends to smaller landlords and bundles the debt into securities. Freddie guaranteed $161 million of debt sold by CoreVest last year in its initial rental deal.
Freddie Mac and its larger rival Fannie Mae don’t make loans, but buy loans from lenders and sell them to investors as securities, guaranteeing that borrowers will make their monthly principal and interest payments. Their scale and government backing typically allow them to borrow at lower rates than others.
There have long been millions of U.S. homes for rent, yet it wasn’t until last decade’s foreclosure crisis that investors were able to buy properties at prices, and in volumes, necessary to make big rental operations profitable. Though home prices in many markets have risen past their 2006 peaks, investors keep buying houses at a rapid clip, a bet that more Americans will rent rather own.
Investors funded the buying spree by tapping private-equity funds, negotiating bank loans and selling short-term bonds backed by rents. The arrival of Freddie and Fannie is an important endorsement for the business as well as a move toward standardization of how it is financed, investors said.
“We have long felt that it was important for us to serve this portion of the rental market,” said David Leopold, who leads Freddie’s single-family rental initiative. “If you look at the segment of the population that single-family rentals support, it’s generally larger families with lower incomes than necessary to purchase.”
Freddie has required that at least three-quarters of the homes in each of its deals are affordable at 80% of the area median income at the time of underwriting, though Front Yard executives assured investors on a call last week that there is no limit to what the company can charge in rent for the 4,813 homes it posted as collateral over the life of the 10-year loan. Separately, Freddie this month began offering lower-cost financing to apartment owners who agree to cap rent increases.
Still, Freddie’s affordability requirement will likely prevent it from financing homes for some of the country’s largest rental-home firms, such as Invitation Homes Inc., which tend to buy pricier homes. Invitation charged an average of $1,725 a month during the second quarter, compared with an average of $1,032 for the homes in Freddie’s announced deals.
Fannie last year guaranteed about $945 million of Invitation’s debt in a deal that drew criticism from realtors and others who viewed it as support for rich institutions that compete with typical home buyers for a limited supply of houses in some of the country’s top housing markets.
Backed by Blackstone Group LP, Invitation owns the country’s largest pool of rental homes, with more than 82,000. It put up 7,204 houses as collateral for the Fannie loan.
Freddie was authorized by its regulator, the Federal Housing Finance Agency, to fund up to $1.3 billion of loans for single-family rental homes in a test run. About $700 million of the allotment has been committed in announced deals and the rest will be soon with loans that are in the works, Mr. Leopold said.
Fannie’s and Freddie’s involvement also marks a shift for their regulators, which in 2012 blocked Freddie from backing bulk buyers of houses over concerns that banks wouldn’t be able to compete with its cheap debt.
Rockefeller Center Tower To Offer Airbnb Rentals
Ten floors of a high-rise overlooking the Manhattan office complex will be rented out as lodging.
The owner of a high-rise office building in Rockefeller Center is teaming up with home-rental giant Airbnb Inc. to convert 10 floors into the first modern-day lodging in the landmark 87-year-old complex.
RXR Realty and Airbnb said they hope to open the facility at 75 Rockefeller Plaza in about a year. The upscale rooms will be on the higher floors of the 32-story tower, allowing guests to gaze on St. Patrick’s Cathedral and offering a bird’s-eye view of Rockefeller Center’s annual Christmas tree lighting.
The Rockefeller Plaza deal, which is still subject to approval from lenders and other parties, is the first of what RXR and Airbnb hope will become a number of lodgings in the New York region. They also are discussing a facility with about 150 units at 47 Hall St. in Clinton Hill, Brooklyn, where RXR has been overhauling a century-old 10-building complex into modern office space.
The Rockefeller Plaza operation will offer about 200 units for overnight stays. It is being set up to avoid the friction that hampered Airbnb’s expansion efforts in other parts of the city. For example, it will be staffed by unionized labor and closely follow city rules, said Scott Rechler, RXR’s chief executive.
“This is a way that’s clearly going to comply” with all of New York City’s regulatory components, he said.
For Airbnb, the Rockefeller lodging would be the flagship of its new effort to expand in markets like New York City as it encounters resistance from local governments.
Under pressure from the city’s hotel industry, New York has imposed strict regulations on such short-term rentals and has hit owners who have failed to comply with heavy fines. In one action earlier this year, the city filed a lawsuit against a residential brokerage that it claimed was the hub of a wide-reaching hotel scheme.
Faced with such reactions in numerous cities, Airbnb has begun to shift its strategy, trying to become more involved in the design and operation of short-term rental apartments. A venture of Airbnb and real-estate developer Niido has opened an Airbnb-branded lodging in Kissimmee, Fla., and one in Nashville. Niido said it is planning many others.
These are part of the company’s broader effort to diversify its business as it prepares for an initial public offering of shares, expected next year.
Airbnb’s deal with RXR would be its first to create a stand-alone Airbnb lodging within an office building in New York. Talks between the two were earlier reported by Politico.
Since 75 Rockefeller Plaza and other RXR buildings are zoned for commercial use, transforming some floors into accommodations potentially faces fewer of the legal complications that have caused headaches for Airbnb hosts at New York City apartment and condo buildings.
“I think we will see how this model works, certainly take lessons from it and apply those lessons as we go forward,” said Chris Lehane, Airbnb’s senior vice president of global policy and communications.
RXR owns more than 6,000 apartments and about 25 million square feet of commercial property in the New York metro region.
In 2012, the firm leased 75 Rockefeller Plaza for 99 years and since then has overhauled the building and leased much of its space to traditional office tenants.
But RXR reserved upper floors for possible hotel use. The company increasingly has been mixing office, residential, hotel, entertainment and retail uses in its projects, believing that demand is growing for urban settings where people can work, live, stay and play.
Developed in the 1940s as the headquarters for Standard Oil Co., 75 Rockefeller Plaza is part of the storied Midtown Manhattan complex that is known for its outdoor ice skating rink, shops and restaurants. The original art deco complex was developed by John D. Rockefeller Jr. during the Great Depression.
Amenities at 75 Rockefeller Plaza already include a private club in the tower named Club 75 and a conference and co-working facility managed by Convene.
The lodging at 75 Rockefeller will be listed in the Airbnb system along with private homes, but won’t carry the Airbnb brand. Rather it and other RXR lodgings likely will have a name tied to the neighborhood or the building.
“Something like ‘The Rock,’ ” Mr. Rechler said.
Marriott to Take On Airbnb in Booming Home-Rental Market
Company poised to be the first major hotel company to create a U.S. home-rental platform.
Marriott International Inc. is starting a new home-rental business, aiming to take on Airbnb Inc. and other home-sharing companies in one of the lodging industry’s hottest segments.
The Bethesda, Md.-based company could unveil details for the plan’s first phase as early as next month, according to people familiar with the matter.
Marriott is the world’s biggest hotel operator with about 1.3 million guest rooms globally, according to data tracker STR Inc. Now, the company is poised to be the first major hotel company to create a U.S. home-rental platform. It follows a pilot program in Europe and marks the next step in the company’s plans to go global with the business, these people said.
Marriott, which owns the Sheraton, W Hotels, and Ritz-Carlton brands, would allow home-rental guests to earn and redeem loyalty points as they do when booking a stay at any other Marriott property, said the people familiar with the program.
Other big U.S. hotel operators, including Hilton Worldwide Holdings Inc. and Hyatt Hotels Corp. , also have been exploring or studying the home-rental business, some of the people said. Some hotel executives, who had long dismissed Airbnb and Expedia Group Inc.’s HomeAway as competitors, now believe they are growing in part at the expense of hotel companies, especially with leisure travelers and large families.
At the same time, Airbnb has been moving aggressively into the traditional hospitality business. Airbnb said last month it was acquiring Hotel Tonight Inc., a company that culls inventory from hotels and offers discounted rooms. It also recently invested in the Indian hotel-booking company Oyo Hotels & Homes.
Airbnb has the largest home-rental platform with nearly 5 million accommodations globally, according to data tracker AirDNA and based on listings with at least one booking in a month. Airbnb’s website puts the figure at more than 6 million, based on active listings.
The San Francisco startup is expected to pursue an initial public offering next year, bankers say, and some hotel-industry executives say that prospect is driving a convergence between home-rental companies and hotel operators. Airbnb is looking to diversify its offerings before going public, while hotel companies want a piece of the home-rental business before an IPO helps Airbnb solidify its position.
The promise of new competition in its core business comes as Airbnb already faces heightened scrutiny from city governments that say some Airbnb hosts have turned their homes into illegal hotels.
New York City passed a law last year that would have required Airbnb and other home-sharing services to disclose to the city detailed listing information, although a federal judge in Manhattan blocked it as too broad. Airbnb has said the law protected the hotel industry while trampling on hosts’ rights.
Marriott would have to abide by any other city restrictions on short-term rentals, but people familiar with the company’s thinking say executives decided the home-rental market was too big an opportunity to pass up.
“It’s clear that the home sharing phenomenon is here to stay, and hotel companies want to make sure they get their piece of this pie,” said Ryan Meliker, an industry professional who has worked as a hotel investor and a Wall Street lodging analyst.
Entering the home-sharing business isn’t without risk. The big hotel operators work primarily on management or franchise basis these days, licensing their brands to hotel owners. By offering apartment rentals, they risk alienating their hotel partners by creating new competition.
Maintaining the brands’ same fire and safety requirements in apartment buildings has been another challenge. Hotels often have stricter standards than many apartment buildings. Fire stairwells in some residential buildings are too narrow to meet the hotel operators code, which would eliminate certain buildings.
Marriott’s successful pilot rental program in Europe is expected to serve as a model for the U.S. initiative, say people familiar with the matter. The hotel company joined with Hostmaker, a London-based home-rental management company, to offer home-sharing stays at 340 properties in Paris, Rome, Lisbon and London. Marriott is working with one or more property management firms in the U.S., some of these people said.
Marriott found that guests tended to stay more than twice the typical hotel length, and the rentals appealed to customers who wanted more space and kitchen and laundry facilities. The European homes included a 24-hour support line and an in-person check-in at the property through Hostmaker, Marriott has said.
Other global hospitality brands have also dabbled in the home-rental business, but without much to show for it. Hyatt took a minority stake in onefinestay, a company that enables travelers to rent upscale private homes.
Accor, the giant Paris-based hotel company, acquired onefinestay in 2016 but noted in an October 2018 press release that the unit had turned in a “negative performance.” An Accor spokeswoman said the company is “continuing its work to turn onefinestay around, primarily through rationalization programs,” and that it was introducing new home collections.
Hyatt also took a stake in Oasis Collections and incorporated the home-rental firm’s listings into its distribution system and loyalty program. After the rental-management company Vacasa LLC bought Oasis last year, Hyatt said it was ending its affiliation with Oasis.
Airbnb, meanwhile, is courting business travelers. It developed a unit aimed at corporate travelers that Airbnb says has attracted 400,000 companies, and it is leading a $160 million funding round for Lyric, a luxury-rental startup that caters to business travelers by offering hotel services such as room cleaning and 24-hour customer support.
Referring to any new competitors in the apartment-rental business, Airbnb’s head of policy and communications Chris Lehane offered this: “We welcome them to the party and wish them bon voyage.”
Marriott’s foray into the home-rental business shows how far the hotel industry has come in recognizing the threat to its business from Airbnb.
Even with much of the hospitality industry now embracing the home-rental business, many key players remain ambivalent, including Hilton chief executive officer Chris Nassetta. “We really view home sharing as a different business,” he said in a statement, adding, “we may think differently in the future.”
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