(Bloomberg)—Cerberus Capital Management is seeking to raise more than $500 million to buy single-family rental homes amid surging institutional interest in the asset class, according to people familiar with the company’s plans.
Unlike traditional real estate funds, which call for managers to return money to investors after a set period of time, Cerberus is raising an evergreen fund without a target date for returning capital, said one of the people, who asked not to be identified because the plans aren’t public. A spokesman for Cerberus declined to comment.
Cerberus, which manages its single-family properties through FirstKey Homes, owned 11,000 homes at the end 2017, making it the fifth-largest owner of rental houses, according to an estimate from Amherst Holdings LLC. FirstKey Chief Executive Officer Martin Esteverena has previously described plans to build a portfolio of more than 40,000 homes.
The fundraising effort comes as investment in rental houses grows. Among other large owners of single-family rentals, Pretium Partners LLC closed on a $1 billion fund and Tricon Capital Group Inc. announced a $750 million joint venture with the Teacher Retirement System of Texas and Singapore’s GIC Pte. Front Yard Residential Corp. acquired a portfolio of 3,200 homes from Pacific Investment Management Co. facilitated by a $509 million loan from Freddie Mac.
Buying rental properties isn’t as easy as it was in the aftermath of the foreclosure crisis, when Wall Street firms including Blackstone Group LP snapped up cheap houses in bank auctions. Larger portfolios occasionally come onto the market when homes acquired through closed-end funds are compelled to sell, but landlords are also buying single-family homes posted on multiple-listing services, where they are competing with ordinary buyers.
Raising money with a longer time-horizon is important now that rental homes aren’t selling at distressed prices, said Transcendent Investment Management CEO Jordan Kavana, whose firm recently raised $250 million in long-term capital to acquire newly built homes for its rental portfolio. New capital rushing into the industry now will drive down yields and could pose challenges for short-term funds if they are forced to sell properties at the same time, Kavana said.
To contact the reporters on this story: Gillian Tan in New York at [email protected]; Patrick Clark in New York at [email protected] To contact the editors responsible for this story: Daniel Taub at [email protected]; Alan Goldstein at [email protected] Dan Reichl
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