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When real estate agent Jim Tice tried to sell a house in Minnetonka last spring, he did so with a sense of urgency. His client was behind on mortgage payments and wanted to unload the place to avoid foreclosure.

There was only one problem: the home had no takers.

But that changed when Tice and his client received an offer from IH2, a division of Dallas-based Invitation Homes.

"In this particular case they were somewhat of a rescue because the property was headed for foreclosure," Tice said. "They were the only offer and the best offer that we thought we'd get."

The company promised that if the property passed inspection, it would pay cash for it.

Lots of real estate investors are cash buyers these days and they typically provide some documentation, like a bank statement, to prove they'll have enough cash at closing.

In the case of Invitation Homes, that bank statement was eye-popping. The balance ran into the millions. 

"A buyer usually isn't showing you millions of dollars of savings in order to buy," Tice said. "So it was pretty impressive in that respect."

 
As the year went on, Tice saw more bids from Invitation Homes -- in the Twin Cities and its and suburbs. So far, the company has amassed 700 single-family homes in the area. Across the nation, the company has spent a staggering $7.5 billion to acquire 40,000 properties in 14 housing markets, making it the largest landlord of single-family houses in several cities.

For anyone wondering where the money comes from, the answer is simple: Invitation Homes is backed by the Blackstone Group, the world's largest private equity firm. Based in New York, it has a major ownership stake in big companies like Hilton Worldwide and the Weather Channel. Its ownership of Invitation Homes makes it a mega landlord.

"We're spending an enormous amount of capital and hiring a large amount of people in order to get this right," Jonathan Gray, head of global real estate at Blackstone, said in a promotional video. "One day my hope is that the folks here at Blackstone and Invitation Homes can go and drive into communities and see families with affordable housing and our investors got a favorable return because of the risks we were willing to take."


The company's venture into real estate was timely.

"Back two years ago, no one was buying this stuff," housing economist Elliot Eisenberg said. "These guys were some of the very first people back into the markets after they hit bottom."

Big institutions like Invitation Homes have helped curtail the housing downturn by acquiring a lot of homes that were in foreclosure or heading that way, Eisenberg said. The companies are banking on big changes in the housing market following the foreclosure crisis. They're betting that a growing numbers of families will rent -- either because they now view housing as too risky or because they've lost a home to foreclosure and can't get a mortgage.

"They'll make money on renting you the house for three, four, five years," Eisenberg said. "By then, your credit scores improve. Your FICO score is nice. You like your neighborhood. You like your house. 'Well, we'll buy the house.' 'Okay, we'll sell it to you!'"

In other words, such companies might have an exit strategy.

But the strategy has some wondering whether housing values will fall if renters stay put.

Eisenberg said what Invitation Homes and other companies are doing is a big experiment. Some financiers, including those for Invitation Homes, are selling bonds backed by their rental properties, which has never been done before. It's not clear how it will work out.

However, while such companies are new to the world of single family rentals, they could professionalize the rental market.  Until now, it's been dominated by mom and pop outfits that own a few houses here and there.

Andrew Gallina, a spokesman for Invitation Homes, said small shops can't match his company's muscle when it comes to customer service. He said Invitation Homes has hired about 1,400 people nationwide to repair and manage its properties.

"By having all these professionals and having all these skill sets and having all these tradesmen internally, we're able to react much quicker to our residents' needs," Gallina said.


That's how the experience has gone so far for Micheal Apple, whose family is renting a four-bedroom house in Eagan for $1,600 a month. Apple said when they first moved in, the latch on the storm door needed repair and some shelves were misplaced. But the company's project manager responded quickly.

"Either I call her or I email her, and she gets back to me within a day or so," he said.

Brad Dukes had a similar experience when he moved into a rental home in Minnetonka in October - at least initially. But his experience with Invitation Homes quickly went down the drain.

Dukes said the home was advertised as having two bathrooms. When he and his girlfriend went to see it, they discovered that the "second bathroom" was just a freestanding toilet in the basement, with no privacy. After his girlfriend complained, Invitation Homes agreed to build a room around the toilet.

Still, Dukes is dismayed about how the poorly constructed end product looks -- after weeks of construction. When he sits on the toilet in the cramped bathroom space, his knees barely clear the wall in front of him. Although workers put up drywall, they did not finish or paint it.

 
"The exterior of this box they put in this unfinished room is going to remain," he said. "I'm going to be looking at sheetrock."

 
Invitation Homes officials didn't want to comment on the case, except to say that the company spent a few thousand dollars on the bathroom. In general, they said, Invitation Homes spends about 10 percent of a home's purchase price on renovations.


Renters in other cities have filed complaints against Invitation Homes with the Better Business Bureau and panned the company in online reviews. They say the company is very slow in responding to requests for repairs.

 
Even though Invitation Homes is likely now the biggest landlord of single-family homes in the Twin Cities, the company has been in Minnesota such a short time that its track record isn't clear.

A number of properties owned by Invitation Homes - in Apple Valley, St. Paul and south Minneapolis - are still vacant, six months after the company bought them.

Gallina, the Invitation Homes spokesman, said the empty houses -- and complaints from renters in other cities -- can all be explained by the fact that the company is still learning the business. He said it's taken longer than expected to secure permits and licenses for home renovations and rentals.

He also notes that Invitation Homes has spent a lot of money to do so. With $7.5 billion on the line and more acquisitions likely, he said the company will be working hard to iron out the kinks.

Despite the company's aspirations to offer top-notch customer service, Gallina acknowledges it still has lessons to learn. But he said those are the marks of a fledgling industry.

"To do what we've done in terms of acquiring and renovating 40,000 homes and renting the vast majority of those to families is no small undertaking," he said. "There are times we're going to be disappointing to a resident. But at the same time, we have a real commitment to getting it right."

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So far, Invitation Homes has amassed 700 single-family homes in the area. Across the nation, the company has spent a staggering $7.5 billion to acquire 40,000 properties in 14 housing markets, making it the largest landlord of single-family houses in several cities.

Huge private equity firm claims stake in Twin Cities real estate

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