Blackstone Doesn’t Hurt the Housing Market—It Helps It

The recent murder of Blackstone real-estate executive Wesley LePatner, one of the victims of the 345 Park Avenue shooting in New York, elicited horror among most Americans. But some radicals claimed her killing was justified as retribution for her work leading Blackstone’ Real Estate Income Trust, and specifically the investment firm’s work buying up neighborhood homes.

These rhetorical attacks on LePatner and Blackstone—part of a rising tide of rage against private equity and capitalism itself—are increasingly untethered from reality. In truth, Blackstone is just one of many investors in America’s housing market. While there are some particular and legitimate concerns, private equity’s role in real estate, on balance, should be welcomed—not condemned.

Blackstone has drawn more ire than other companies because it was the first private-equity firm to get into single-family housing. After the financial crisis, CEO Steve Schwarzman had an epiphany: “the biggest asset class in the world [housing]” was “trading at historic lows.” Starting in 2012, Blackstone began buying up single-family homes to rent through its subsidiary, Invitation Homes. Within four years, Invitation owned almost 50,000 houses.

When Blackstone and Invitation Homes entered the single-family housing market, the housing-price crash ranked among the nation’s top concerns. These firms, along with other buyers, helped stabilize a collapsing market at a time when many others couldn’t—or wouldn’t—step in. Though critics faulted Invitation for acquiring homes through foreclosure sales, these were exactly the kinds of properties that, if left vacant, would have decayed and dragged down entire neighborhoods. A recent analysis found that Invitation spent an average of $39,000 on renovations per home—investments that helped preserve property values for surrounding homes as well.

Many have criticized Blackstone and Invitation for pushing people into renting homes instead of buying them. But beginning in 2016, Blackstone offered renters the chance to buy the homes they were renting at preferred mortgage rates. About a fourth of the tenants who stopped renting from Blackstone became homeowners, similar to the rate of other private-equity firms that invested in housing.

At the same time, it’s not clear why buying homes just to rent them out is so evil. As one recent study showed, giving renters access to single-family neighborhoods reduced racial and income segregation. In other words, Blackstone helps make the much-maligned suburbs more diverse, both racially and socioeconomically.

Invitation Homes went public back in 2017, and later Blackstone divested itself from the company. That same year, Blackstone created the Blackstone Real Estate Income Trust, or BREIT, which LePatner would eventually head.

BREIT differs from Invitation in many ways. Most of its investments are not in housing. About 40 percent of its portfolio by value is held in data centers and industrial facilities. BREIT has also bought self-storage units, offices, hotels, student housing, and even the Bellagio Hotel and Casino in Las Vegas.

BREIT’s biggest housing investments were purchases of other large companies, not buying out mom-and-pop landlords. In 2021, it acquired Home Partners of America for $6 billion. This transaction provided BREIT with its largest block of single-family homes. But counter to the myth of Blackstone destroying homeownership, the company focused on lease-to-own properties, which provide an opportunity for homeownership to low-income families who otherwise can’t afford mortgages. The following year, BREIT spent $5.8 billion to buy Preferred Apartment, which owned large apartment complexes.

In recent securities filings, less than 10 percent of BREIT’s portfolio consisted of single-family homes—and many of those were rent-to-own. The 62,000 homes in BREIT’s portfolio made up just 0.06 percent of the nation’s single-family housing stock. BREIT owned about four times as many multifamily units, primarily large apartment complexes that have long been owned by institutional investors.

Many critics treat private equity as if it exists in a rarefied world, disconnected from ordinary Americans. In reality, BREIT was created precisely so that small investors could access real estate markets. Unlike other funds that require high minimum investments, BREIT let people get started with as little as $2,500.

That focus on small investors created challenges in 2022, when many sought to withdraw funds, forcing BREIT to limit redemptions to avoid fire sales. But the University of California pension system stepped in with a $4.5 billion investment. Today, one of BREIT’s largest backers isn’t the fat-cat investor class—it’s California’s often anti-capitalist academic establishment.

This is not to say that there aren’t some issues with private-equity-owned housing. Outside investors can fail to maintain houses or integrate them with neighborhoods. Local governments should be sensitive to such issues.

But on the whole, private equity and other institutional investors should be more involved in America’s housing. The American housing market is worth about $50 trillion—almost as much as the entire U.S. stock market. Those trillions leave more than enough room for owners, landlords, and investors. The investments of Blackstone and people like Wesley LePatner in America’s still-undersupplied housing stock should be welcomed, not excoriated and attacked.

Photo:  Thomas Northcut / The Image Bank via Getty Images