Blackstone’s dip into the rent-to-buy market

This is an audio transcript of the FT News Briefing podcast episode: Blackstone’s dip into the rent-to-buy market

Marc Filippino
Good morning from the Financial Times. Today is Thursday, February 17th, and this is your FT News Briefing.

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A ruling by Europe’s top court paved the way for Brussels to withhold funds from member states who violate the EU rule of law. Plus, one of the biggest private equity groups bought a company with a popular home finance model called rent-to-buy. We’ll look at how it works and whether it works for aspiring homeowners.

Mark Vandevelde
One thing that people said was, you know, this was really cool. I got to pick out any house as if I was going to buy it. But some people really struggle to navigate this path to home ownership.

Marc Filippino
But first, we’ll tell you about the markets. I’m Marc Filippino and here’s the news you need to start your day.

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US stocks limped through the day yesterday, but then edged into the black after the Federal Reserve released the minutes from its January meeting. The minutes confirm that the US central bank is set to raise interest rates next month and that it’s open to more tightening if inflation doesn’t calm down. Here’s our US economics editor, Colby Smith.

Colby Smith
Neither of these two points, you know, really present anything demonstrably new in terms of what we already learned from the January meeting, but it is confirmation that they are seeking to kind of maintain as much flexibility as possible here.

Marc Filippino
Colby, what was the reaction in the Treasury market? Treasuries have been, you know, super volatile lately, and it looks like short-term Treasuries actually rallied a little bit after the minutes came out.

Colby Smith
Investors in that space have been, you know, highly sensitive to any signalling from the Fed about the policy path forward. And I think it more broadly speaks to the fact that no one has too clear of an idea of exactly what the Fed is going to do. There’s still open debate about whether they’re going to move more aggressively at the March meeting and raise interest rates by, let’s say, 50 basis points. That’s double what they typically do, which is a quarter of a percentage point move. There’s uncertainty about what happens after that. So at this point, there’s a lot of scope for markets to move quite dramatically on any incremental details that we do get from the Fed.

Marc Filippino
Colby Smith is the FT’s US economics editor.

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Europe’s top court cleared the way yesterday for the bloc to withhold funding from member states that violate the rule of law. The European Court of Justice essentially rejected a legal challenge by Poland and Hungary, and as the FT’s Sam Fleming says, it upheld a law that aims to give some teeth to the enforcement of rule of law values.

Sam Fleming
Which EU members states have signed up to, but which have been under threat in numerous jurisdictions such as Poland and Hungary in recent years.

Marc Filippino
Sam Fleming is the FT’s Brussels bureau chief.

Sam Fleming
So it will be a major step for this actually finally to happen. I think, having said that, I think it will happen. I think the budgetary consequences of that for an individual member state is not clear yet because the commission is going to need to make quite focused cases against a member state saying, here are the particular rule of law concerns; here are the ways in which those concerns have direct bearing on the way EU money is being spent, and therefore that money can be withheld or paused. So it’s not a question of just cutting off the entire flow of money on a single day. It’s more complicated than that.

Marc Filippino
Sam also says the European Commission is under pressure to move forward in withholding funds.

Sam Fleming
We could see action from the commission certainly early next month, and we don’t know. But there is certainly the potential for it to move in particular against Hungary, where I think a lot of MEPs would expect the first case to be brought.

Marc Filippino
Sam Fleming is the FT’s Brussels bureau chief.

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The private equity giant Blackstone has been building up its residential property portfolio in the US. Last year, it spent $6 billion to buy Home Partners. This is a company that offers a popular home finance model called rent-to-buy. The FT’s Mark Vandevelde looked into the company and joined me to talk more about how it works. Hey, Mark!

Mark Vendevelde
Hi.

Marc Filippino
So, Mark, let’s start off by breaking down rent-to-buy. How does it work for home seekers?

Mark Vendevelde
Well, the idea is that this is something that might be useful for people who want to buy a house, but can’t right now because they can’t get a mortgage. They don’t have a downpayment ready. They have maybe tarnished credit. What Home Partners says it will do is you can pick a house, not one that’s currently available for rent, but one that’s on the market to be sold right now. You can’t buy it, but home partners will, and then they’ll rent it to you for up to five years, with the rents agreed in advance. And if at any time you want to buy them out of the house during that five years, you can.

Marc Filippino
So Mark, you spoke to some customers, people who were using the Home Partner system. Were they happy with it?

Mark Vendevelde
We heard a mix of things from Home Partner’s tenants. One thing that people said was, you know, this was really cool. I got to pick out any house as if I was going to buy it. And it can be difficult to find rental housing. There isn’t much of it. They saw in Home Partners was, or one of the advantages was they were able to choose from a much wider range of houses. But there’s also a significant minority of tenants for whom it doesn’t work out that way. So we found 967 houses in Orlando and its surrounding counties that Home Partners has bought since 2015. And of those, 155 have since been sold to individual homeowners.

Marc Filippino
Is that a typical rate across the company?

Mark Vendevelde
It’s so, it’s complicated. Something like one-fifth of the people who rent from Home Partners will end up buying. But that leaves the other 80 per cent who don’t. Some of them, according to Home Partners, didn’t intend to buy a house in the first place. Some people did intend to buy but then just find another house that they prefer. There are also cases in which people run into trouble, fail to keep up on the rent, end up in disputes with Home Partners. And things can go wrong that way, too.

Marc Filippino
If four out of five Home Partners customers remain renters, that means Home Partners and Blackstone are really more corporate landlords than home financiers. Does anyone see that as a problem?

Mark Vendevelde
Home Partners occupies an interesting position in this debate, and so a question that arises is how effective is Home Partners at providing this alternative path to home ownership? And I think you could fairly say if 20 per cent of their tenants end up buying houses that they wouldn’t otherwise have been able to buy, then for that 20 per cent of tenants, clearly, it is a path to home ownership. But at the same time, if 80 per cent of tenants either don’t or can’t exercise that option and don’t end up homeowners, and if Home Partners then just rents the houses that they bought for those people to other people, then it’s creating a permanent stock of rental houses itself. And so I think the question is just how much of a solution can Home Partners offer to what many people perceive as the undesirable growth of renting in the suburbs?

Marc Filippino
Mark Vandevelde is the FT’s US private capital correspondent.

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Before we go, Apple CEO Tim Cook’s latest pay package comes to $99mn. OK, it was a banner year. Cook does run the most valuable company in the world, but the FT has learned that a leading shareholder advisory group wants Apple investors to vote no on Cook’s pay. Institutional Shareholder Services cites significant concern with the stock award that Cook received last year. A no vote would not block Cook’s compensation deal, but it could force him to defend his pay package.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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