Corporate Landlords Find Themselves in Trump's Crosshairs

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1:37You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevec on Bloomberg Radio. Healthcare certainly in focus as the JP Morgan Healthcare Conference is underway in San Francisco. Also, what we're watching closely, what's happening in the housing industry. This is after President Trump last week brought the issue of corporate home buying front and center when he pledged in a social media post to stop institutional investors from buying more homes. Some major owners of single-family rental homes were blindsided by the news, according to people with knowledge of the matter. And we saw shares of institutional buyers dive on that.

2:13One of those major owners of single-family homes joins us now. Stephen Schur is co-president of Predium. The firm has more than$60 billion in assets under management, including around$32 billion of real estate. It owns and manages more than 82 ,000 homes in more than 30 markets. Also joining us, Srinath Arajan, Bloomberg News Chief Wall Street Correspondent. They both join us here in the Bloomberg Business Week studio. Welcome, guys. Thanks for joining us. That's where I want to start, Stephen. Sure. The edict from President Trump, did it blindside you? Did it come as a surprise? Yeah.

2:42Stephen Scherr:We did not expect nor anticipate that that would be kind of an initiative that the president was going to take up, specifically as it relates to single-family homes. Having said that the president is putting and has put on the table a critically important issue for the country, which is affordability of housing. And I think in as much as we were surprised by his social media post, we stand quite ready to be a force for a solution where private capital can play a very active role in the housing issue. Affordability in and of itself is very much a supply demand equation. The country is short, anywhere from three to four million homes.

3:26Stephen Scherr:It's more acute on the rental side than on the ownership side. So surprised in the news, not surprised, in fact, welcoming of the issue being put on the table and quite ready to be a part of that solution. Right. Affordability, not coming to anyone as a surprise who's been in the housing industry for the last, what, four or five years at this point. I think everybody's familiar with the idea of supply and demand being the issue. But I guess I'm curious about what specifically you can do and what private capital can do to be part of the solution. Sure. Well, for one, there have been a lot of fits and starts around rent to own propositions.

4:05Stephen Scherr:That is where somebody rents a home and migrates toward a place where they can own it. We play a role right now in that people that rent homes with us and others in the industry improve their credit, their credit standing, and it is a pathway to get there. Now, private capital can play a more assertive or more aggressive role in that process. Imagine a scenario in which rent is paid, money is held back to provide against a deposit account for a down payment on that home. That person may have access to that to bring the down payment down. Imagine mortgages in the one or two percent category where both banks and the GSEs could play a role.

4:44Stephen Scherr:Imagine where we were to link arms with home builders who could build smaller, more affordable homes that could be affordable. At the moment, if you look at just the homes that Peredium rents, 90 % of our renters are not eligible for a mortgage. So you start there with a big issue that's in play. In the affordability question more generally, just know that on a like-for-like basis, to own a home relative to rent a home is about 40 % more expensive. Mortgage rates are implicated by that, property taxes, insurance. So this is a larger issue, but one where, again, if we were to come up with a method by which a rent-to-own, a credible rent-to-own project could be put in place, I think private capital could be a key participant in that.

5:35You talk about linking arms with other stakeholders. Homebuilders are obviously another important part of this conversation and administration has had conversation with a lot of leaders there. What specifically can you do when you do link arms with, say, homebuilders or some of the other stakeholders? What proposals could you put forward if, of course, the idea of a complete institutional investor ban is unacceptable, which is to you.

6:00Stephen Scherr:Sure. Well, I think any solution to this, which is to migrate more and more people into a place where they can afford a home, is going to involve a lot of different parties, private capital being one, the home builders being another, banks and the GSEs around mortgage reform being yet another. And obviously, the administration has taken some steps now in terms of repurchases of mortgages to sort of bring that more in line. So it's going to take a lot to sort of pull that together. I'm quite confident, though, that private capital can play a role in it. By the way, that would not be new to this administration.

6:36Stephen Scherr:Remember, in the first Trump administration, Opportunity Zones was signed into law in 2017. That was basically to take capital, private capital, that was being harvested from one investment and put it to work in an opportunity zone, an area or a zone that had or was in need of capital. That was a very solid proposal and program. About$100 billion of private capital was put to work. By the way, it was made permanent in the second Trump administration. So there's a basis by which private capital can be harnessed and put to work. I think this is an extension of that. And I think if the administration were to sit down with a group of us, we could put a proposal, we could put a project together.

7:24And after the truth social bombshell, are we still in shock or have some of these conversations started to take place behind the scenes, at least within this group?

7:32Stephen Scherr:Sure. Conversations, as you might imagine, have begun among industry participants, among the home builders and those that are representative or stewards of capital in the single family rental. Those conversations will prove constructive. in as much as any and all of us were surprised by the announcement. The issue of affordability is not news to us. And we have made inroads previously to try to improve the ability of people that rent homes from us to ultimately migrate toward a place where they can own a home, credit improvement and the like. We're speaking with Stephen Schur, the co-president of Predium, more than$60 billion in assets under management, among the largest institutional owners of single-family homes in the country.

8:16I'm curious what the investment implications would be if we did see a ban. Where would the institutional capital go if you weren't able to invest in single-family homes?

8:27Stephen Scherr:Well, I think it's important to note, Secretary Besant noted that there's no intention here to compel sales. So there are large portfolios of homes that are still out there. There's also a multifamily business. If you just look at the business of Pretium, we are both on the equity and the credit side. We extend billions of dollars of credit that's given to us and invested with us that we extend out to smaller and midsize home builders and developers. We have a mortgage business. We have a multifamily business. So there are various aspects of our business that would not be implicated even by the proposal that's been put on the table.

9:07Stephen Scherr:But as I said, I don't view an outright ban as being the logical end state. I think there's an opportunity for a big, beautiful housing bill to come together to which we would play a part. And then equally, as I've spoken about, the opportunity for private capital to play a very specific role in improving the ability of people to rent. Still, the criticism of institutional investors of single-family homes, it doesn't come as a surprise to you. Bill Pulte, FHFA, was on earlier today on surveillance. He said, I was on board of Pulte Home for four years. I understand what institutional buying does.

9:44It's very powerful. Senator Elizabeth Warren has said that, quote, Congress should work on legislation to stop corporate investors from buying up homes. How would you respond to them specifically?

9:54Stephen Scherr:Well, they are right. I mean, the amount of capital that private capital brings to the table is important, but it's important to understand how. So, for example, large home builders are taking on projects all the time. If they have a project of 100 homes and private capital in the rental category are speaking for 25 % or a third, those homes will get rented. That means that the other two-thirds to three-quarters are being sold to individuals that want to own a home. It just means that the project that home builders are taking on is de-risked by the proposition that private capital is there. I'd also say as to Director Pulte's comments, it's important to note there's been a time migration as to how homes are bought in and among this industry.

10:43Stephen Scherr:It began more than a decade ago as single-family purchases on the MLS listing. These were largely homes that were in need of considerable capital, and companies like ours and others put$30 ,000 a home in to improve the housing stock. That has migrated now to where single-family or single purchases on the MLS are a de minimis component of what's bought. So the notion that we are now, perhaps as in the past, somehow boxing out individuals from owning a home, I just think is no longer right. It's no longer a contemporary observation of what's playing out. You know, you make a point that this proposal is likely not to play out in its most extreme form.

11:32But for a second, can you sketch out the worst case scenario for the American public if something like this were to go into effect, if institutional investors were completely banned from buying homes, single family rentals?

11:44Stephen Scherr:Well, I think if private capital was sidelined, that would only serve to worsen the problem, not make it better. This is an enormous industry. So there are 145 million households in this country. About a third of them are rental. And by the way, it's been a third for a long time. So that hasn't changed. And the place of private capital to sustain that, to try to address the supply-demand imbalance, is an important component. So the reality is, if private capital is pulled away, this would have negative, not positive effect on the ultimate solution to create an affordable stock of housing, which, as I said earlier, is more acute on the rental side than it is on a home ownership side.

12:31Stephen Scherer, co-president of Pretium, also Srinath Rajan, Chief Wall Street Correspondent, both joining us here in the Bloomberg studio. If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But even the best strategies can't prevent every bad day. For more than 75 years, Cincinnati Insurance has helped individuals and businesses navigate tough moments with expertise, personal attention, and independent agents who focus on relationships, not transactions. The Cincinnati Insurance Companies. Let them make your bad day better. Find an agent at CINFIN.com.

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