Future of Lending

A few weeks ago I wrote an article exploring the new rent backed bonds Blackstone has begun issuing. When I wrote that article I thought their next step would be to start buying leases from investors and bundling them up. Turns out, I was wrong…but not by much.

Blackstone is calling their next step B2R. I recently had a phone call with one of their employees, and I thought I would share my thoughts on what this means for the real estate market.

What is B2R?

At its core, B2R is similar to a bank. Both lend out money to real estate owners, sell the debt to a third party, and start the process over again.

The difference is who they sell it to. In the case of banks it’s either a government agency like FNMA or a private note buyer.

B2R takes a bunch of these notes, bundles them up as a bond, and sells them to investors (mostly institutional). This is known as securitizing the notes.

To make this bundling process easier B2R only lends money on 5 or more rental properties.

Why would anyone buy these new bonds? Well…it’s repayment is not only backed by the mortgage but also the rental cash flow, so, in theory, it should be a safe place to park your money.

Why is This Good for Investors?

Make no mistake about it, this is the next big thing. If all else stays the same, this model will become the NORM, not the exception. Here’s why:

Less regulatory headache

If you don’t know already know, starting in 2014 the red tape you have to jump through to get a loan is going to exponentially increase. It’s to the point that many smaller banks don’t think they will be able …read more