The Real Deal New York

Former Goldman exec behind “The Big Short” looking to raise $1B to buy up foreclosed homes

Donald Mullen Jr.'s Pretium Partners betting on potential of US single-family home rental market

October 05, 2016 01:20PM

Donald R. Mullen, Jr. (Credit: Andrew H. Walker/Getty Images)

Donald Mullen, Jr. (Credit: Andrew H. Walker/Getty Images)

A decade ago, when he was the head of Goldman Sachs’ mortgage and credit business, Donald Mullen Jr. bet against the U.S. housing market in what became known as “The Big Short.” Now, his real estate investment firm Pretium Partners is looking to close the loop by raising $1 billion to buy tens of thousands of foreclosed single-family homes and rent them out to tenants, the Wall Street Journal reported.

This will be Pretium’s third fundraising round dedicated to residential real estate. In 2012, with foreclosures still rampant, Pretium raised $1.2 billion and purchased 16,500 homes. In 2014, the firm raised another $900 million and purchased roughly 14,000 non-performing home loans, making it the owner of the fourth-largest pool of single-family homes in the country, after the Blackstone Group, American Homes 4 Rent and Colony Starwood Homes. 

As it did with its first fund, the $1 billion would go towards purchasing homes to rent out to tenants, but the bet is not as obviously lucrative as it might have been several years ago.

With fewer foreclosed homes available, Pretium will likely be buying more homes on the open market. And while home ownership is still at historically low levels, a six-year housing boom has caused the rental market to slow.

Nevertheless, Pretium wrote in a 69-page pitch to investors, cited by the Journal, that “tight credit is preventing households from being able to obtain mortgages to purchase their first home.” Those households become renters, “thus driving high occupancy rates and robust rent growth,” the pitch said. Pretium also wrote that while they won’t find the bargains they used to, they’re buying homes in target markets like Houston, Phoenix, Indianapolis and Atlanta at roughly 20% less than it would cost to build.

Other investors are also seeing a change in the market. “Prices have come up a lot,” Blackstone’s president Hamilton James told investors on a July call, according to the Journal.  “We’re still buying some homes. But it’s harder to buy in the volume we once did.”

Pretium rents and manages their homes under the name Progress Residential. [WSJ]Chava Gourarie