Pretium, an investment manager with $59.5 billion in assets under management as of Dec. 31, 2024, is planning its first fund to acquire single-family homes to be leased at affordable rents, according to a Bloomberg report.
The strategy reportedly involves purchasing properties that need deep renovations and then renting them through the Section 8 Housing Choice Voucher program.
Out of its total AUM, $34.9 billion is real estate, $21.5 billion is residential credit, and $3.1 billion is corporate credit. CEO Don Mullen was a former partner at Goldman Sachs who left in 2012 to launch Pretium.
Pretium is combining previous experience for this new fund. The firm already has focused on single-family rentals for lower-income people through the Housing Choice Voucher program. To date, the company claims more than 2,500 Housing Choice families served with more than 960 added in 2023.
More broadly, the company claims more than 97,000 homes owned and managed in over 30 core markets, with at least 65,000 of those SFR houses acquired individually rather than through portfolio acquisitions. Pretium is also in the build-to-rent space, creating SFR communities and newly constructed portfolios of homes. It acquired 7,500 homes in 78 communities across more than 30 core markets. The firm also operates in multifamily with about 100,000 units under management, 30,000 of which are owned, across 28 states.
SFRs became popular after the global financial crisis when millions of houses went under foreclosure and institutional investors were able to purchase properties at relatively low prices. It was a change from previous domination of the market by mom-and-pop investors.
However, that changed in 2022 as Federal Reserve efforts to constrain rising inflation set off much higher borrowing costs. A National Association of Realtors study in 2023 found that the median prices institutional investors paid had been about 26% lower than the median prices in the same states. About 42% of respondents said institutional investors purchased homes that needed repairs. Success in SFR depended on achieving a low enough initial price to permit profitable operation.
Today, 30-year mortgage rates run well over 6.6%. Assuming institutional borrowers can negotiate lower rates with the promise of volume and solid credit, that still strengthens the need to find houses needing repair and sell for significantly less than other properties in the same areas.
The choice of Section 8 rentals reduces risk by offloading large portions of monthly rents onto the federal government.