Being listed on the stock market was always seen as the pinnacle of a corporation’s evolution. Once companies had outgrown their ability to raise money through private funding rounds they would look to the public market as their final stop. The stock market has been an incredible source of growth capital for companies for over a century but the tool can be a help or a hindrance depending on which way the wind of investor opinion seems to be blowing.

Real estate investment trusts have seen how the market can hold companies back just as easily as it can push them forward. Public REITs have been battered in the current environment as investors fear the impacts of high interest rates on property values while comparing these income-generating investments with increasing bond yields. Private REITs have not had the same pressure. Even though many of them have also been forced to write down their valuations, it is nothing close to what public REITs have seen their stock prices fall to. It is for that reason that we are seeing more and more public real estate portfolios being bought up by private companies.

The latest example is Blackstone’s acquisition of Tricon Residential. This strategic acquisition, facilitated by Blackstone Real Estate Partners X and Blackstone Real Estate Income Trust (BREIT), involves Blackstone purchasing all outstanding shares of Tricon at $11.25 per share, a 28 percent premium on Tricon’s current stock price. This offer is especially enticing considering Tricon's stock was down almost 60 percent from its high back in 2022. Following the approval of the deal by Tricon’s shareholders and the finalization of the transaction, Tricon will no longer be a publicly traded company; it will be delisted from stock exchanges and become a wholly owned subsidiary of Blackstone's private entities.

The attractiveness of this deal isn't limited to the discounted stock price. In Tricon’s last quarterly earnings call the President and CEO, Gary Berman, explained how they have been struggling with “loss-to-lease.” This is a sophisticated sounding term for units that have tenants paying undermarket rents. “Our policy of self-governing on renewals, coupled with longer resident tenure has resulted in an estimated loss-to-lease of about 11 percent across our total proportion portfolio […] Most of that loss-to-lease is sitting with residents that have been in our homes for 3 years or more, and represents an opportunity of about $40 million in annualized revenue.”

The self-governing policy that Mr. Berman is referring to is Tricon’s Renters Bill of Rights. This policy obligates the company to offer renewals to any renter in good standing and limits the increases they are allowed to charge on those renewals. Blackstone, on the contrary, has no such policy. In fact, Blackstone has already been accused of raising rents for the properties that it acquires. As a private company Blackstone is able to avoid any market sell-off that negative press like this could generate, giving them more leeway to capitalize on this substantial loss-to-lease.

Clearly, Blackstone recognizes the value in acquiring public REITs, as evidenced by their history of similar acquisitions prior to this deal. As the public market sours on its view of property investments like REITs, this could be a strategy used by other private firms as well. Those other acquirers may not possess the capital or the ability to withstand negative market sentiment as effectively as Blackstone.

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