Summary
- Starwood Waypoint Residential is likely to benefit from the fragmentation and strong macro-level characteristics.
- SWAY’s business model has well-defined channels in which the growing REIT can take advantage of the enormous fragmentation and capitalize on the efficiencies generated through economies of scale.
- As I see it, most great franchises or brands come in packs of three.
- My point is that I see SWAY as one of the big consolidators, and that’s the bet you are really making on this company.
The housing meltdown sparked by the Great Recession created the opportunity for investors to own single-family homes in the thousands, mostly through distressed acquisition networks.
Over the past approximately two years, major institutional players have invested approximately $20 billion of capital to acquire approximately 100,000-200,000 properties, while investors (both small and large) have amassed nearly 2 million homes (roughly 20% of home sales).
As illustrated above, there are a number of players that have gravitated to the asset class – some to get rich quick, and others to benefit from the long-haul approach. REITs seem to be better equipped for a healthy consolidation as the smaller private funds – many regionalized – seek liquidity in the form of umbrella partnership REITs (or UPREITs) that create a nice tax advantage for tax deferral.
In a segment that is highly fragmented, the consolidation of smaller holders of portfolios into UPREITs should produce 2 or 3 industry giants. One of these –Starwood Waypoint Residential (NYSE:SWAY) – is likely to benefit from the fragmentation and strong macro-level characteristics.
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