We’ve been telling you for a while about how Wall Street has been getting into the landlord game, buying up big chunks of cheap housing for rentals.
But there’s a new wrinkle (paywall): Private-equity firm Blackstone is working with Deutsche Bank on chopping up the cash flows on rental payments it receives on some of those properties to sell them off to investors. In other words, securitizing rentals.
Previously, securitizations of residential real estate were tied to mortgage payments. Rental securitizations would be a new product altogether, and a potential big new payday for Wall Street’s once formidable structured finance engine.
Are there potential problems with these kinds of bonds? Probably. Wall Street’s ranks of structured finance alchemists rely heavily on historical data to determine the risks of the different slices—or tranches—of the bonds they sell. And since residential real estate rentals have long been the purview of small mom-and-pop local operators, there isn’t a lot of historical data on the behavior of renters.
But it also should be noted that Wall Street’s growing presence in local residential real estate has been an important factor in shoring up hard-hit housing markets over the last year or so. (Check out Phoenix, where heavy investor demand has pushed home prices up more than 20% over last year.) And that’s been an incredibly good thing for the economy as a whole.