Rental prices north of Austin have taken a notable dip, dropping from $2,419 a month in September 2022 to $1,969 by November 2024. This 19% decline over two years spells trouble for Tricon Residential, the property owner, and by extension, Blackstone, which now owns Tricon. A deep dive into the financial situation suggests that profitability on these properties may be eroding quickly, with cash flow concerns looming large.
At current asking rent levels, a typical Tricon home nets $23,628 in gross annual rent. Once expenses are factored in, such as the substantial $6,880 property tax, net income dwindles to $10,163. However, the potential losses emerge when debt servicing is taken into account. If Tricon acquired the home for approximately $375,000—common for purchases from Meritage Homes in 2022—and leveraged 70% of that cost, the mortgage debt would be roughly $263,000. With a 5.75% interest rate, annual debt payments stand at $15,094. The result? A potential annual loss of around $5,000 per property.
The broader picture raises even more questions. Tricon’s investment in this neighbourhood wasn’t a one-off purchase but rather a bulk acquisition of about 100 homes. Of these, 10 are currently listed for rent, all reflecting similar reductions of 15-20% from their 2022 rental rates. This trend suggests the entire portfolio may be bleeding cash, with rent collections no longer covering expenses and debt servicing.
It’s important to dispel a common myth about Wall Street’s involvement in the housing market. Many assume that big players like Blackstone acquire properties outright, paying in cash and avoiding loans. In reality, debt financing is a significant component of these investments. Tricon, for instance, funds its acquisitions through the Mortgage-Backed Securities (MBS) market, securing debt that must eventually be repaid.
As outlined in Tricon’s 2023 annual report, a financial storm could be on the horizon. The company has $903 million in debt set to mature in 2025 and another $2.1 billion in 2026. When this debt rolls over, it’s likely to do so at much higher interest rates. Tricon’s current average rate on fixed debt sits at 3.45%, but prevailing MBS rates are now around 6%. This significant jump in financing costs could further erode profits and place pressure on cash flow.
This situation isn’t limited to the Austin area. Across the United States, other Wall Street-backed real estate ventures are feeling the squeeze. Rent drops and rising fixed costs, such as taxes and insurance, are a growing concern. For example, in Florida, a region already feeling the pinch, investors like Blackstone are beginning to offload properties. In one case north of Tampa, a Blackstone-owned entity is taking an $85,000 hit on a property bought just two years ago.
Looking ahead to 2025 and 2026, the housing market may see more investor-driven sell-offs. As debt maturities approach and financial strain worsens, investors might opt to liquidate rather than continue weathering losses. Monitoring inventory data will be crucial for anyone trying to gauge the housing market’s trajectory. Tools like Reventure App provide insights into inventory trends across the United States, helping track where investor sell-offs may be more pronounced.
Ultimately, the big question is how long Wall Street firms can sustain losses before they’re forced to act. The numbers suggest that 2025 could be pivotal, particularly if market conditions don’t improve and debt refinancing becomes costlier. If rents continue to decline or even stagnate while fixed costs rise, the pressure will mount. For markets already struggling with declining rental yields, the coming years could bring a wave of property listings as institutional investors seek to cut their losses and move on.
