Divi Homes, a Silicon Valley-backed company that promised consumers of modest means an alternative to homeownership, is selling single-family homes in part because high mortgage rates make it difficult to buy a home. Negotiations are underway to sell the property to a rental management company. According to a person briefed on the matter.
The company informed employees of the impending sale, and several employees were laid off in the past few weeks ahead of the announcement, the people said.
Several officials at Divi, a so-called rent-to-own company based in San Francisco, did not respond to requests for comment. Fast Company, which first reported the prospect of a sale, said the buyer was Maymont Homes, a division of Brookfield Properties.
A spokesperson for South Carolina-based Maymont Homes did not respond to a request for comment. A Brookfield spokeswoman declined to comment.
The deal is expected to close next month, one of the people said.
Divvy, which once operated more than 7,000 homes in 19 U.S. metropolitan areas, struggled in an era of high interest rates that made it difficult for consumers to get mortgages. The company, founded in 2017, was also plagued by complaints from customers that home repairs weren't done in a timely manner and that they were charged relatively high rents.
Divvy's housing portfolio is smaller than before as the company has been selling off vacant properties in recent years.
The proposed sale comes at a time when the housing market remains out of reach for many Americans due to a combination of high mortgage rates, high home prices, and a lack of supply of new homes. The average interest rate on a 30-year mortgage, the most popular mortgage in the United States, is about 7%.
Divvy started with much fanfare and funding from two Silicon Valley venture capital firms, Andreessen Horowitz and Caffeinated Capital, hedge fund Tiger Global, and a Singaporean sovereign wealth fund. The company, once valued at $2 billion, said it intended to reinvent its rent-to-own model and make it more consumer-friendly.
An aggressive marketing strategy led by Divvy's co-founder and CEO Adena Hefets resulted in positive coverage of the company in the media.
Rent-to-own companies have historically filled a niche in low-income areas where so-called small mortgages are hard to come by. But these companies often sell dilapidated homes cheaply, and the worst companies (some of which have been fined and sanctioned by state attorneys general) are quick to evict tenants. Desired homeowners seek to profit from improvements made.
Divvy offered a different model in which prospective homeowners could choose the home they wanted on the open market. Divvy would buy it and rent it back to customers who would have three years to buy a home or take out a mortgage to move out. The company charged tenants higher-than-market rents, with a portion of the proceeds going toward the down payment of the sales price, which was fixed at the beginning of the lease.
Some customers have successfully transitioned from renting to homeownership. However, many people were unable to get a mortgage or had problems getting Divvy to repair their properties.
The company's financial woes began to surface after the pandemic, when interest rates began to rise due to inflation. Rising interest rates have not only increased mortgage rates, but also increased the cost of borrowing Divvy, the money needed to buy a home. The company has made several job cuts over the past two years as mortgage rates have remained high even as inflation has begun to decline and the Federal Reserve has begun cutting interest rates.
Once the deal closes, Maymont, a more traditional home rental company, will honor all existing sales agreements with Divvy customers, according to people briefed on the matter.
High mortgage rates are also affecting other major rental companies. Home Partners of America, a Divy competitor that Blackstone acquired in 2021, largely suspended writing new rental deals with customers when mortgage rates began to soar.
Blackstone subsequently acquired Tricon Residential, a major single-family rental company. The private equity firm is in the process of merging Home Partners into Tricon. Kirsten Noyce contributed to the research.
