Oakland's Waypoint Real Estate Group, a pioneer of buying foreclosed homes and turning them into rentals, on Monday became the latest contender in the crowded "corporate landlord" category to list shares on Wall Street.
"We consider ourselves a technology company disguised as a real estate company," said Waypoint co-founder Doug Brien, a former 49er who will serve as co-CEO of the new entity, Starwood Waypoint Residential Trust. "We built our business rapidly by leveraging technology to take advantage of a dynamic market opportunity."
That opportunity was the housing downturn, which caused millions of homes nationwide to go into foreclosure. Waypoint's custom software helped it identify homes to buy at a discount, and then create efficiencies of scale to manage their rehab and rentals, Brien said.
With banks selling foreclosures at steep discounts, deep-pocketed Wall Street players backed by hedge funds and private equity have spent $20 billion over the past two years to scoop up some 200,000 such homes nationwide and rent them out, according to industry watchers. Rental income from the homes provides a higher return than many other asset classes.
Monday's release is actually a spin-off, not an initial public offering. Under an IPO, a company seeks to raise money by selling shares to the public. In this case, Starwood Waypoint is issuing shares of itself to existing investors in Starwood Property Trust, a public company affiliated with real estate mogul Barry Sternlicht's Starwood Capital Group. Waypoint merged with an affiliate of Starwood Capital Group in October."
Sternlicht will serve as chairman of the new entity, which is a real estate investment trust, or REIT. It trades on the New York Stock Exchange under the ticker SWAY.
The new company has plenty of financial firepower, Brien said.
"We have a $500 million (line of) credit closing shortly and $100 million of cash, so we have plenty of dry powder," he said.
Starwood Waypoint is the second-biggest public institutional-landlord REIT after American Homes 4 Rent, but is dwarfed by Blackstone Group's still private Invitation Homes, which has about 40,000 homes, four times Starwood Waypoint's portfolio, Brien said.
That portfolio includes about 5,000 homes primarily in Florida and Texas acquired by Starwood. Waypoint had acquired about 5,000 homes, including many in Contra Costa and Solano counties, and will continue to manage those for the 11 funds that backed them.
The rise of Wall Street rental empires has stirred fears from consumer advocates about a new class of slum landlords and possibly a new housing bubble.
"Certainly the cohort of large Wall Street investors is growing, but relative to the 14.4 million U.S. single-family homes, it's a drop in the bucket," Brien said.
Waypoint prides itself on tenant relations, he said, which includes a system in which renters who pay on time and keep their houses well maintained can earn points to spend on cruises, lower rent or home upgrades.
Institutional landlords have found a tepid reception on Wall Street. Some newly public REITs, including Silver Bay Realty Trust Corp. and American Residential Properties, trade below their offering prices.
SWAY shares closed Monday at $30, up 2.56 percent on a day when many stocks tumbled.
Waypoint originally filed for its own IPO last year but withdrew it after "the REIT market fell off a cliff in June right as (Federal Reserve Chairman Ben) Bernanke was talking about tapering," or reducing its purchases of long-term securities, Brien said.
Although housing prices are rising, reducing the chance to find bargains, Waypoint said plenty of buying opportunities remain.
"There are still 8 million-plus homes in some stage of delinquency," Brien said.
Starwood also has about 1,500 nonperforming loans.
Gary Beasley, another Waypoint founder and co-CEO of the new spin-off, said buying mortgages in arrears presents a new opportunity for either foreclosing and turning them into rentals, or working with homeowners on loan modifications to make the payments affordable.
"We anticipate spending $2 billion in the next two years, with maybe 40 percent to buy (nonperforming) loans and the balance being homes, averaging about $150,000 each," he said.