Divvy Homes, a Silicon Valley-backed company that promised an alternative path to homeownership for consumers of modest means, is in talks to be sold to an operator of single-family home rentals, in part because high mortgage rates has made home buying difficult, according to people briefed on the matter.
The company told employees of an impending sale, the people said, and several workers were laid off in the past few weeks ahead of an announcement.
Several officials with Divvy, a so-called rent-to-own company based in San Francisco, did not respond to requests for comment. Fast Company, which first reported the prospective sale, said the acquirer was Maymont Homes, a division of Brookfield Properties.
A spokeswoman for Maymont Homes, based in South Carolina, did not answer requests for comment. A spokesman for Brookfield declined to comment.
The deal, one of the people said, is expected to be completed next month.
Divvy, which once operated more than 7,000 homes in 19 metropolitan areas in the United States, had struggled in an era of high-interest rates that made it difficult for consumers of modest means to get a mortgage. The company, founded in 2017, also was plagued by complaints from customers about failures to make home repairs in a timely fashion and the relatively high rents it charged.
Divvy’s portfolio of homes is smaller than it used to be as the company has sold-off vacant homes in recent years.
The proposed sale comes as the housing market remains out of reach of many Americans because of a combination of high mortgage rates, high home prices and a lack of supply of new homes. The average rate on a 30-year mortgage, the most popular home loan in the United States, is around 7 percent.
Divvy started with much fanfare and financial backing from two Silicon Valley venture capital firms — Andreessen Horowitz and Caffeinated Capital, as well as the hedge fund Tiger Global and a Singaporean sovereign wealth fund. The firm, which at onetime was valued at $2 billion, said it would reinvent the rent-to-own model and make it more consumer friendly.
An aggressive marketing strategy led by Adena Hefets, Divvy’s co-founder and chief executive, resulted in favorable write-ups on the company in the media.
Rent-to-own firms have historically filled a niche in lower-income communities, where so-called small dollar mortgages are hard to come by. But they often market rundown homes picked up on the cheap, and the worst firms — some of which have been fined and sanctioned by state attorneys general — are quick to evict renters and reap the benefits from improvements made by hopeful homeowners.
Divvy offered a different model in which prospective homeowners were able to choose any house they wanted on the open market. Divvy would buy it, and then rent it back to customers who would have three years to get a mortgage to either buy the house or vacate. The company charged tenants higher than market-rate rents because some of that money would go toward the down payment on a sale price that was locked in at the start of a lease.
Some customers had success converting from renters to homeowners. But many were either unable to get a mortgage or had problems getting Divvy to make repairs to the properties.
The company’s financial struggles began to emerge after the pandemic, when interest rates began to soar because of inflation. Higher rates led to not only higher mortgage rates but also higher borrowing costs for Divvy — funds it needed to purchase homes. Over the past two years, the company has had several round of layoffs as mortgage rates remained high even as the inflation rate began to come down and the Federal Reserve cut interest rates.
If the deal is completed, Maymont, a more traditional home rental company, will honor all of the existing buy-to-rent contracts with Divvy customers, said a person briefed on the matter.
High mortgage rates have affected other large rent-to-own companies. Home Partners of America, a competitor of Divvy, which Blackstone acquired in 2021, largely paused writing new rent-to-own contracts with customers when mortgage rates began to surge.
Blackstone has since acquired Tricon Residential, a large single-family rental company. The private equity firm is in the process of folding Home Partners into Tricon.
Kirsten Noyes contributed research.
