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An investor with 35,000 rental houses is sitting on $3 billion of 'dry powder'

Nov 10, 2022

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The SFR industry boomed during the pandemic, but big investors are slowing purchases right now.

Regular homebuyers aren't the only ones holding out for better deals in today's real-estate market.

Tricon Residential, one of the largest owners of single-family rental homes in the US, is sitting on nearly $3 billion of "dry powder" that it plans to spend on thousands of more homes "when the time is right," its CEO, Gary Berman, told analysts during the company's third-quarter earnings call on Wednesday.

Tricon, which owned roughly 35,000 single-family rentals at the end of September, added nearly 2,000 homes to its portfolio in the third quarter, Berman said. But buying homes has gotten much more expensive over the past few months, since sellers are reluctant to back down on prices and borrowing costs have gone up because of the Federal Reserve's interest-rate hikes.

Tricon and its competitors — companies like American Homes 4 Rent and Invitation Homes, each of which owns tens of thousands of rental homes across the country — have responded by slowing their acquisitions as they wait for more clarity on where home prices and interest rates are headed.

Berman said the company expected to buy up 850 homes in the fourth quarter, for a total of 7,300 this year. That would be a record for Tricon but also well short of the 8,000-home projection the company made during its earnings call in August.

Berman said the company was "slowing down today" so it could buy larger portfolios at discounted prices in the future.
"We do foresee such opportunities becoming available," Berman said during the call. "The great part about our model is that we can scale our acquisition program up or down very quickly depending on market conditions."

Berman added that the company had nearly $3 billion that it could deploy, including liquidity on its own balance sheet and unfunded equity commitments from its joint-venture partners.

Single-family rental operators may be slowing down in the short term, but the biggest players have been adamant that the fundamentals of their business remain strong. Indeed, a persistent housing shortage and rising mortgage rates appear to be boons for the SFR business, since more people are likely to choose to rent rather than purchase a home.

Executives at American Homes 4 Rent and Invitation Homes told analysts in recent weeks that they'd been receiving more phone calls from builders looking to offload homes but that so far the prices hadn't made sense for SFR operators to buy in bulk.

Berman reiterated that sentiment, noting that in most cases builders were still demanding prices that were too high for SFR operators.

"We bought some discounted homes from builders, but we think there'll be more of that," Berman said. "We also think that a lot of the startups in single-family rental may have trouble getting financing, and so maybe some portfolios shake loose. We want to make sure that we're ready for that, because we think we can get those at discounted prices."

Berman said he's not anticipating a "significant or difficult recession" and added that Tricon expected home prices to remain "fairly steady" — maybe down another 5% from their current levels, he said.

"We think this is really more of a Wall Street recession," Berman said. "The real only level of uncertainty or concern is around the trajectory of interest rates. That's what's really holding us back."

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