Before the pandemic, private equity had amassed $2.5 trillion – more than the GDP of Italy – in ‘dry powder,’ waiting for distressed assets to plunder. Covid-19 provided them with the perfect opportunity.
There’s a new app with a tagline that promises that you, too, can ‘profit like a landlord from just £1 with no effort’.
Proptee, set to launch this year (subject to approval from the UK’s Financial Conduct Authority) allows anyone with, say, five grand to buy shares in a buy-to-let flat in London worth half a million. In return, you receive a slice of its tenants’ monthly rent—here about one percent—with the promise you can cash-out your investment as the value rises.
‘We’re building a stock exchange for properties that lives on your smartphone and combines the high yields and low risk of property investing with the high liquidity of a stock exchange,’ explains 24-year-old cofounder Benedek Toth.
Proptee shows just how far the logic of Wall Street has infiltrated housing across the US and Europe since the Global Financial Crisis, before which most private landlords remained conventional, small-scale operations, with a handful of properties at most. But after the US housing market crashed in 2007, a few Wall Street investment firms cracked the code for how to turn homes into a tradeable asset class worth billions.
A handful of giants led by private equity firm Blackstone were the frontrunners, snapping up single-family houses in US foreclosure auctions and apartments in firesales launched by Europe’s right-wing governments, as EU-imposed austerity measures forced cities like Madrid to sell off social housing for pennies on the dollar.
Scooping up whole suburbs of distressed homes on both sides of the Atlantic, Blackstone became the world’s largest landlord in a matter of years. First, it set up various rental companies—Invitation Homes in the US, or Fidere in Spain—before selling off shares in these companies to other investors or packaging together thousands of tenants’ rental income into obscure financial products.
While Proptee offers you a share of one house’s rent, private equity sold investors the chance to get their hands on thousands of homes’ rent cheques bundled up together. For Blackstone, it paid off, as wealthy backers poured billions into these schemes: the $88.4 billion of investor capital it held at the time of the 2007 crash has today ballooned to $619 billion, and is rising.