Renters Warehouse bought by investment group

Renters Warehouse, one of the biggest managers of rental houses in the country and a well-known TV advertiser, has been sold to a group of local investors with plans to make it even bigger.

Northern Pacific Group, which focuses on technology and service companies, says it will invest significant resources to expand the Twin Cities-based company tenfold.

"The company has proven out its business model and is poised for tremendous growth," said Scott Honour, Northern Pacific's managing partner. "We are bringing capital and know-how to the company that will help it accelerate its growth."

Terms of the deal were not disclosed.

The deal comes at a time of increasing competition for companies that specialize in renting and managing single-family houses — a sector of the property management industry that barely existed more than a decade ago but grew to accommodate a tsunami of accidental landlords who couldn't sell their homes after house values plummeted.

The industry is now dominated by national real estate investment trusts that own and manage thousands of single-family houses — most of them former foreclosures — that are scattered across the country. There are also hundreds of much smaller companies, including many that were started by former real estate agents who saw an opportunity to manage their clients' unsold homes.

Brenton Hayden hopped into the trend early and quickly. He founded Renters Warehouse on the cusp of the housing crash in 2007 and later took on investors to help develop a franchise operation. The company grew swiftly, landing a spot on Inc. Magazine's list of fastest growing privately held companies in America.

By the end of 2012 the company had offices in Arizona, Colorado, Maryland, Tennessee and Georgia and more than 2,000 properties under management. It now has about 10,000 homes under management.

Honour, who also is a co-founder of YapStone, an online rental property payment service provider, said his goal is to have Renters Warehouse managing 100,000 homes in three years.

"We believe significant growth lies ahead for professional landlords like Renters Warehouse," Honour said. "We are already underway on opening the next new corporate-owned market and are working with franchisees to help them accelerate their growth through more advertising."

The forces that helped shape the industry are now shifting. Fewer people are stuck in the homes because they have a mortgage that exceeds its value. The overall homeownership rate also has been falling, giving back all the gains it made during the housing boom. And rising rents have made rental properties a hot investment category, drawing investors from across the country.

Those changes have made the industry ripe for consolidation — and expansion. An analyst report from Wells Fargo also cited significant room for growth within the single-family rental sector by taking advantage of economies of scale and greater access to capital markets.

"The industry is still highly fragmented, with very few dedicated professional service providers," said Kevin Ortner, who will continue as president of Renters Warehouse. "We expect that over time, there will be meaningful consolidation of the market."

Last week, two of the largest owners and managers of single-family rental homes announced their plans to merge. When the deal closes next year, according to the Wall Street Journal, Starwood Waypoint Residential Trust and Colony American Homes Inc. would own and manage a combined 30,000 single-family homes worth nearly $8 billion.

Today, Renters Warehouse has 27 franchised offices with plans for many more, mostly in smaller markets.

"This investment will allow Renters Warehouse to more rapidly expand our national footprint," said Hayden, who will retain a minority share of the company and become chairman emeritus of the board. "The injection of growth capital into Renters Warehouse will create a solid foundation for our plan to open more regional corporate offices and simultaneously grow our franchise division."

Northern Pacific has added to the Renters Warehouse board two of its principals, Peter Offenhauser and Marcy Haymaker, as well as California-based businessman Doug Bergeron, who was CEO of VeriFone for about 12 years.

Ortner said the ownership transition had nothing to do with a cease-and-desist order issued by the Minnesota Department of Commerce one week before the sale of the company. The settlement included restitution and a civil penalty of $150,000 for multiple violations of Minnesota law, including failure to deposit security deposits and overcharging for bounced checks. If the company complies with the department's orders, $50,000 of the fine will be stayed.

Ortner said the audit was a "routine process that occurs from time to time" and that the company had already begun changing its business practices.

"The company has addressed the issues which arose from the audit," he said.

Jim Buchta • 612-673-7376