Location Strategy Chartbook 01.18.25

Fast Company: Rent-to-own startup Divvy Homes is being acquired in a fire sale by Charleston, South Carolina-based Maymont Homes, according to multiple people familiar with the matter. Maymont, a division of Brookfield Properties, manages a portfolio of single-family rental homes.

Divvy initially gained traction with families that had been priced out of homeownership, promising them a pathway to the American Dream and distancing its brand from the rent-to-own category’s predatory history. Divvy bought a home of the customer’s choosing and then rented it back to them while setting aside a portion of their monthly payments for a future downpayment. Customers had three years to buy the home outright at a predetermined price.

But as the company expanded to new cities, customer complaints accumulated. In October 2022, Fast Company reported that Divvy was failing to address residents’ requested repairs, charging higher rents than its landlord peers, and evicting renters in greater numbers than before. Even some customers who had successfully bought their homes from Divvy said they were dissatisfied with the process and its costs.

At the same time, the Federal was raising interest rates, dealing a blow to Divvy’s business model. By late 2023, Divvy had conducted three rounds of layoffs, putting it in league with other struggling proptech startups.

Bloomberg: President-elect Donald Trump nominated Bill Pulte as director of the Federal Housing Finance Agency, giving the self-proclaimed online philanthropist a key role in deciding a bet that could net hedge funds billions. If confirmed, Pulte would assume leadership of an agency that sits at the crux of the US housing market, with oversight of Fannie Mae and Freddie Mac.

He’ll face a tough task to figure out what to do with the mortgage companies — which have been under government supervision for more than a decade — just as investors such as Bill Ackman are champing at the bit to finally see the firms unleashed. The job is powerful, according to Ed Mills, a Washington policy analyst at Raymond James Financial Inc. “Whatever you say goes,” Mills said. “You can be the head of the FDIC and you can influence what a bank does, but here, you’re essentially head of Fannie and Freddie because they’re in conservatorship.”

“If privatization of Fannie and Freddie are not done right, this could crater the economy,” said Susan Wachter, a real estate professor at University of Pennsylvania’s Wharton School. Pulte is a surprising pick to lead the FHFA given his lack of experience in the federal government.

In some of her final public remarks as Treasury secretary, Janet Yellen this month said she hoped that the next administration takes the US fiscal trajectory “seriously” and described the current path as “simply not sustainable.”

President-elect Donald Trump’s pick as her successor, Scott Bessent, in his Senate confirmation hearing on Thursday made clear he shares such concerns. He described the current budget deficit — at more than 6% of GDP — as a phenomenon unseen before outside of recession or war.

Bessent said he was disturbed because the Treasury “historically used its borrowing capacity to save the union, to save the world and to save the American people,” whether during the Civil War and World War II or the Covid crisis. “And what we currently have now, we would be hard-pressed to do same.”

After that, the outgoing and incoming (all indications are that Bessent will sail through to confirmation) secretaries diverge sharply. Bessent, a veteran hedge fund manager, said the No. 1 economic issue right now is extending the 2017 Republican tax cuts set to expire at year-end. Failure to do so would pose a massive economic blow that could trigger financial instability and even a “sudden stop” in activity, he said.

Treasury yields dropped sharply following the softer-than-expected core CPI print.

The stock market is pricing portfolios of American homes at a hefty discount to what houses are changing hands for in the open market. Shares of single-family landlords Invitation Homes and American Homes 4 Rent are trading at 35% and 20% discounts to their net asset values, respectively, according to real-estate analytics firm Green Street. Invitation Homes’ stock has traded at a particularly large discount to NAV since interest rates began to rise in early 2022, but the gap has widened by 10 percentage points in the past year. 

Put another way, while the average house in the metro areas where Invitation Homes owns its properties sells for $415,000 based on Green Street’s analysis of prevailing market values, the company’s share price implies that investors think $310,000 is more appropriate. 

If a large and persistent gap opens up between the property values implied by publicly traded stocks and private markets, it can mean that a correction is on the way. In 2020, shareholders in listed office stocks priced in upheaval caused by the pandemic shift to remote working months before values started to tick down in private sales.

ten31: Blackstone has been telling the world of a real estate recovery, a market ripe for big, transformative bets on the future of the built environment, bets that it was put on this Earth to make. But new data from its flagship fund hint at salvation still being a ways away. BREIT gained just 2% in ‘24, and though that’s a lot better than its 0.5% loss in ‘23, its managers will still not be able to take a promote - BREIT needs to deliver at least 5% for it to share in carried interest, and per Bloomberg this is the 2nd year in a row in which it hasn’t met that threshold.

New supply, soft rent growth and rising vacancies will weigh on the market, according to Freddie Mac’s 2025 multifamily lending outlook released last week. In addition, the softening fundamentals are set to combine with still elevated interest rates to exert downward pressure on property values, according to the housing finance enterprise.

However, because Freddie Mac calls these “short-term pressures,” apartments will likely remain a favored asset class over the long term. A backlog of transactions sidelined by the high-interest-rate environment will come into play due to a strong U.S. economy and lack of affordable housing options, Freddie Mac said.

The Federal Housing Finance Agency first signaled an improved multifamily capital markets outlook in November. As a result, the FHFA increased its multifamily loan purchase caps to $73 billion for both Freddie and Fannie in 2025, up roughly 4% from 2024. The larger caps indicate the FHFA expects 2025 to bring stronger multifamily financing activity.