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TPG’s purchase of single-family homes in Florida, which it rents out nightly, shows how travel habits are evolving

Private-equity giant TPG has started buying single-family homes in Florida vacation markets, where it is renting them out nightly as alternatives to hotels and short-term rentals on websites like Airbnb.

Other private-equity firms, publicly traded companies like Invitation Homes and many institutional investors have been active buyers of single-family homes for years, leasing their properties for a year or longer.

TPG is the rare large investment firm to buy up homes expressly for the purpose of renting them out daily. The firm hired Kasa, a New York-based hospitality firm that manages about 75 properties for daily lodging across the U.S., to manage the Florida homes.

A representative for TPG said that the Florida home-buying project is a “pilot program” and wouldn’t necessarily scale to large numbers if results fall below expectations. But the firm also said that Florida was the test ground, and if the program proved successful it would look to expand to other vacation markets.

TPG’s new program reflects the evolving nature of travel during the pandemic. Corporate travelers are extending their stays by tacking on a day or more of vacation, combining business and leisure trips in a phenomenon the lodging industry calls bleisure travel.

Executives at TPG are betting that bleisure travelers, more flexible remote and hybrid workers, and people traveling with families will want more room, a kitchen and greater privacy, making a spacious home preferable to a hotel suite.

If other big investment firms were to emulate this strategy and rent out homes nightly in major tourist markets, it would represent another potential threat to the hotel industry, which is already facing increased competition from short-term rental companies like Airbnb and Vrbo in many vacation spots.

Hotel operators have acknowledged that many guests want longer-stay options by investing more in extended-stay brands, many of which include larger guest rooms with kitchens and dishwashers to accommodate visits of a week or longer.

“People have more time to do bleisure,” Hilton Chief Executive Chris Nassetta said at a Fast Company event last month.

Both Hilton and Marriott International in recent months have unveiled plans for new extended-stay brands. Hyatt said it has preliminary commitments from developers for more than 100 hotels under its new brand Hyatt Studios, a higher-end extended-stay brand.

At the same time, TPG believes that by renovating the Florida homes, adding new furniture, and professionally managing them through Kasa, the private-equity firm can charge a premium rate compared with individual Airbnb hosts.

Sean Hennessey, head of a hotel consultancy and associate professor at New York University’s Tisch Center of Hospitality, said carving out a new lodging model can be a challenge, and it isn’t clear if the economics will work daily.

But he sensed an opportunity among more affluent travelers who have found the experience of renting from individual homeowners inconsistent.

“Some are disaffected and are looking for a higher level of quality and service,” Hennessey said.

TPG said it has acquired about a dozen homes in Fort Lauderdale, Pompano Beach and other Florida hot spots through one of its real-estate funds. The firm has purchased homes as recently as the first quarter, though along with other institutional investors it has paused most of its buying as soaring mortgage rates and tight supply of inventory for sale has limited opportunities.

“We started this pilot project almost two years ago as part of our longstanding thematic focus on leisure,” a TPG representative said. “As a result of changing market dynamics and the emergence of more compelling opportunities, we are concentrating our time and capital on other areas of the real-estate sector.”

While TPG’s purchase prices for the homes have varied, some have run to more than $1 million. In Fort Lauderdale, for example, the firm paid $1.3 million in March for a five-bedroom home with three bathrooms, a swimming pool and nearly 2,500 total square feet, according to real-estate firm Zillow and Broward County property records. Kasa recently listed the TPG home, which was furnished with a pool table and backyard grill, for $275 a night on Airbnb.

The business model is riskier than renting homes annually. Like hotel operators, TPG will have to resell a property each day. But it also offers greater upside by renting homes on a daily or weekly basis at rates comparable with similar vacation rental homes in the area, TPG said.

Another potential risk is the prospect of public backlash if TPG controls a swath of housing in a particular market.

Some housing advocates say that single-family rental companies and their all-cash offers make them more appealing to sellers, and that they are squeezing an already-tight supply of homes for sale.

While home-buying firms have said they are creating opportunities for renters to live in neighborhoods where they can’t afford to buy, TPG could face similar complaints if the program ramps up and has large ownership in certain towns.

TPG declined to comment on any public reaction.

Yield on short-term British government debt falls to lowest level since June

Short-term UK gilts rallied sharply on Tuesday as traders seized on comments from a senior Bank of England policymaker suggesting it may be willing to consider interest rate cuts in the middle of next year. 

The yield on the interest rate-sensitive two-year gilt fell as much as 0.1 percentage points to 4.6 per cent, the lowest level since June, after comments from Huw Pill, the BoE’s chief economist, late on Monday. Yields move inversely to prices.

The declines come as investors shift their focus from interest rates needing to stay high to curb global price pressures to the prospect of weaker economic growth.

Speaking after markets had closed on Monday, Pill said the BoE could be in a position to “consider or reassess” its stance on rates in the middle of next year depending on how the economic prospects evolved.

Market expectations for cuts next summer were not “unreasonable”, he said, while adding that it was unlikely that nothing would happen over the next nine months to change the outlook.

“BoE’s Pill opened the door for discussions about cuts by suggesting that rate cuts around summer are possible,” said Mohit Kumar, chief European economist at Jefferies. “This is the first time a major central bank has started talking about cuts.”

Government bonds across the US and Europe have rallied sharply over the past week after a string of weaker than expected economic data and downgrades to the BoE’s growth forecasts.

Benchmark US Treasury yields have fallen 0.26 percentage points over the past week, the biggest weekly decline since the collapse of Silicon Valley Bank in March.

“Global yields have been moving together since Friday’s payroll data,” said Lyn Graham-Taylor, a rates strategist at Rabobank. “It’s all variations of a theme — we had a massive bid for bonds on Friday, an unwind on Monday and a bit of a bid again today,” he said.

Official figures from Germany on Tuesday showed industrial production fell for the fourth consecutive month in September, taking third-quarter output in the sector down 2.1 per cent and adding to the gloom over Europe’s largest economy.

Ten-year Bund yields — the benchmark for the eurozone — fell 0.05 percentage points on Tuesday to 2.69 per cent.

Swaps markets are now fully pricing in the first rate cuts for the Federal Reserve and the European Central Bank in June next year. The UK’s first rate cut is priced for August.

Analysts attributed the rally in short-dated gilts to the market bringing forward its expectations for the BoE’s rate cuts. The market has priced in a rate of 4.56 per cent by December next year, down from 4.75 per cent at the start of the month.

“The UK is playing catch-up in terms of pricing in rate cuts for next year as the global narrative has turned to a weaker growth outlook over the last week” said Megum Muhic, senior associate strategist at RBC Capital Markets.

The bank has stressed it expects to keep rates on hold for an extended period as it combats inflation, while declining to define that period specifically. Last week, the bank predicted a stagnant period for UK economic growth next year, while warning that risks to the inflation outlook remained “skewed to the upside”. 

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Beijing officials express optimism but analysts say weak export data shows recovery remains fragile

The IMF has raised its forecasts for China’s economic growth, citing stronger policy support from Beijing, as Chinese regulators used a gathering of top Wall Street heads in Hong Kong to push back against investor gloom over the country.

The fund said China’s gross domestic product would grow 5.4 per cent in 2023, upgrading its previous forecast of 5 per cent. It came as China released weaker than expected export data, adding to recent mixed readings on retail spending, manufacturing and consumer prices.

“The authorities have introduced numerous welcome measures to support the property market,” the IMF’s first deputy managing director Gita Gopinath said in a statement. “But more is needed to secure a quicker recovery and lower economic costs during the transition.” 

Beijing has been battling to improve confidence in the economy, which has struggled to rebound after stringent Covid-19 lockdowns last year, a property sector meltdown and weakness in export industries.

Foreign investors have dumped tens of billions of dollars worth of Chinese stocks and bonds this year, a trend exacerbated by much higher interest rates in the US.

The IMF said it had also upgraded its forecast for China’s growth next year from 4.2 per cent to 4.6 per cent but cautioned that weakness in the property sector and subdued external demand would persist.

Over the medium term, GDP growth was projected to decline gradually to about 3.5 per cent by 2028 because of weak productivity and an ageing population, said Gopinath.

“A strategy to contain the risks from the ongoing property sector adjustment and manage local government debt is needed to lift sentiment and boost near-term prospects,” the fund said. “Supportive macroeconomic policies should complement these efforts.”

But at a Hong Kong investor conference on Tuesday, one of the territory’s flagship events for the global financial community, China’s top officials said they were not “too” worried about the country’s economy. 

He Lifeng, China’s vice-premier and a powerful Communist party official overseeing China’s economic and finance affairs, said in a pre-recorded message that China would achieve its official growth target of 5 per cent this year.

“You may ask me, are you worried?” said another official, Zhang Qingsong, deputy governor at the People’s Bank of China, who attended in person, on China’s economy. 

“Not too much,” he told the event, which was attended by some of the most powerful executives in global finance, including Morgan Stanley’s James Gorman, Goldman Sachs’s David Solomon, Citadel’s Ken Griffin and Mark Rowan of Apollo Global Management.

Zhang said China’s economic fundamentals were stable and its government debt was “lower than [in] many other advanced economies”. 

Many of China’s largest developers have defaulted on their debts, prompting calls for a sector-wide bailout. But Zhang described this as “a natural selection and market-clearing process”.

“Having said that, we need to carefully manage the pace to avoid a sharp downturn and unintended consequences . . . I prefer to let the market play its role, but do policy adjustments if necessary,” Zhang said. “We are quite optimistic about the future of China’s property market.” 

The positive messaging from regulators came after one-third of listed Chinese companies reported third-quarter results that fell short of expectations — the most in half a decade, according to an analysis by Morgan Stanley.

China’s benchmark CSI 300 index has fallen more than 6 per cent this year.

But Wang Jianjun, vice-chair of the China Securities Regulatory Commission, the market watchdog, said the domestic debt and equity markets were “full of opportunities right now”.

“It’s never too late to catch the China train — you can still ride the dragon to heaven,” Wang said.

China’s exports dropped 6.4 per cent in October compared with the same period a year earlier, the sixth consecutive month of declines and worse than a Reuters survey of analysts that forecast a 3 per cent fall. 

In one positive sign, however, China’s imports expanded year-on-year for the first time since February, rising 3 per cent.

“The disappointing exports point to external headwinds to the still fragile recovery, while the much-better-than-expected imports suggest domestic demand could be bottoming out on policy support,” said Citi analysts in a note.

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