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Rental House Giant Backs $750M Push to Lease-to-Own

(Bloomberg) — A group of investors that formed the single-family rental company inside Blackstone Inc., during America’s foreclosure crisis, is back with a new venture they say could help young families buy homes in times like these. Ownership has become increasingly out of reach when rising prices are pushing.

Rent-to-own startup Pathway Homes plans to spend an initial $750 million acquiring homes on behalf of its clients, who will lease properties with the option to buy them. The company is backed by venture capital firm Fifth Wall, UK-based Regis Group and Invitation Homes Inc., a single-family homeowner that Blackstone went public with in 2017.

Texas-based Invitation Homes, the largest single-family homeowner in the US with more than 80,000 properties, is investing $225 million in Pathway’s first fund. A representative said the startup is in advanced talks with additional investors and could add an additional $1.5 billion in buying power.

The push to rent-to-own housing comes as rising purchase prices and rents have strained household budgets, while also attracting the attention of Silicon Valley and Wall Street. A popular play is to acquire suburban homes and rent them out to families who cannot afford to buy. Rent-to-own programs, like those offered by Pathway, are becoming another way for companies to cater to young families.

“It’s a natural way to join a segment that continues to grow,” said Dallas Tanner, chief executive officer of Invitation Homes. “We think a large number of people will want to see it.”

Regis, whose president, Nick Gold, was Invitation Homes’ first CEO, has experience with the rent-to-own model. In the UK, the firm set up a company called Sage Housing which allows clients to buy a part of a house and pay rent on the remaining portion until they are ready to buy the whole house. Blackstone acquired a majority stake in SEZ in 2017.

Pathway, which has started operating in Atlanta and Phoenix, launched with a different model. It buys a house on behalf of its client, who rents it out with the option to buy the house at a predetermined price. It helps customers save for a down payment and plans to launch a partial ownership program later this year.

Rent-to-own, which is not a new concept in the US housing market, has a mixed reputation. Critics say operators incur additional costs by failing to convert renters into owners, charging a premium for home-ownership opportunities without actually delivering on the opportunity to low-income families.

In recent years, a new batch of rent-to-own companies have argued that they can make money on the model without taking advantage of customers. America’s largest home partners were bought by Blackstone last year for $6 billion.

Divi Homes, valued at $2 billion in a recent fundraising round, leads a group of venture-backed companies using variations on the model.

Regis Partner Devin Peterson said there is a strong demand from consumers for different ways to buy a home. The pathway is meant for buyers who are struggling to buy properties, and it could eventually lead to companies with social impact to designated capital, he said. The startup grew out of an effort Regis called Resilabs to build housing solutions for America

“The average first-time buyer feels like they are at a huge loss,” he said. “We’re building a package that takes people on the journey of homeownership. We want to make it as widely accessible as possible.”

To contact the author of this story: at Patrick Clark in New York [email protected]

© 2022 Bloomberg LP

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