Report: Blackstone mulls real estate bonds

The Blackstone Group is reportedly looking to capitalise on its acquisition of 40,000 residential homes in the US by issuing a bond backed by rental payments.

Deutsche Bank is understood to have been mandated to market around $500 million of bonds secured against The Blackstone Group’s burgeoning residential housing portfolio, with JP Morgan Chase and Credit Suisse also working as arrangers, according to Bloomberg.

At least one tranche of the debt is understood to have been given the highest investment grade rating (AAA) by one of the three ratings agencies scrutinising the credit – Kroll, Morningstar and Moody's – the report added. 

The deal will be secured by individual mortgage liens on each underlying property rather than an equity pledge in the SPV which owns the properties. This will allow Blackstone to make use of a Real Estate Mortgage Investment Conduit (REMIC) structure, according to reports. 

Blackstone has deployed $7.5 billion over the last two years to acquire around 40,000 houses in the US, making its Invitation Homes business the largest single-family rental company in the country – double the size of American Homes 4 Rent, the second-largest.

Blackstone chief executive Stephen Schwarzman said the rental housing play was “a very long-cycle investment” in an earnings call last week. “We took a strategy of wanting to be as patient as possible … There’s a real dislocation and we think this is a very sensible, long-term way to develop our business,” he added.

Securitising the rental payments would mark an important step in the evolution of this industry, and would allow Blackstone to purchase more homes and leverage its returns on the housing portfolio.