Institutional Investors Snatch up Bank-Owned Houses
Fannie Mae REOs for sale federal REO-to-rental program REO to rental REOs to rentals single family rental market
Multifamily Executive had a great article about the recent trend of institutional investors buying up single family homes for rentals: • From: MULTIFAMILY EXECUTIVE • Posted on: December 13, 2012 Competition Heats Up in REO-to-Rent Space By Derek Mearns For years, the shadow market of single-family rentals has been a nagging nemesis of the apartment industry. It’s notoriously difficult to quantify, both in terms of sheer numbers and its impact on the multifamily market’s fundamentals, hence the name. It is to the apartment industry what unlicensed cabs are to the taxi industry. But maybe there’s nothing to fear. According to Jeff Hayward, head of Washington, D.C.-based Fannie Mae’s multifamily division, there’s plenty enough demand to go around, and it’s an apples-to-oranges comparison anyhow. “We see REO-to-rental initiatives as a complement to the multifamily market,” says Hayward. “A standalone house attracts a different type of renter; they tend to be older, may have a family, and therefore need more space. They may have even been through a foreclosure or short sale, so they may be accustomed to living in a single-family home.” Some early investors in the single-family rental market have seen their gamble pay off handsomely. Single-family rents rose by 2 percent in 2011 and nearly that much in 2012. That might not sound like much when you stack those numbers up against apartment rent growth. But consider this: Single-family rents have been growing steadily for a couple of years even though the sector’s growth typically lags home price growth by about 12 months. Take Santa Monica, Calif.-based Colony Capital. Colony has become a dominant player in the sector, scooping up more than 19,000 distressed single-family properties or loans since 1991 to the tune of $48 billion. And Colony CEO Tom Barrack has publicly announced he will be placing a $1.5 billion bet on this specific asset class moving forward. Currently, Colony’s investments are yielding 7 percent to 8 percent returns after expenses. In November, the firm purchased a 970-property portfolio from Fannie Mae under the federal REO-to-rental program for approximately $176 million. The homes are split between California, Nevada, and Arizona. And then there’s New York-based Blackstone, which is buying $100 million in houses each week and is up to about $1 billion in its current portfolio. “This is the kind of thing that happens once, or every once in a while, where you see something that’s a market-turning trend,” says Stephen Schwarzman, Blackstone’s chairman, in a conference call. “And we are loading the boat.” One of the pioneers of the REO-to-rental business was Scottsdale, Ariz.-based American Residential Properties (ARP), which is in the process of filing for an initial public offering in 2013. According to Laurie Hawkes, president of ARP, the company looks at individual family circumstances and regional considerations to ensure its portfolio is filled with profitable assets across the board. “Our expectations in these investments really do vary regionally,” says Hawkes. “We are generally seeing 20 to 25 percent turnover, but we’re still in the early stages of this investment class.” ARP usually looks for investments in the $100,000 to $200,000 range and has been seeing 5 percent to 7 percent net returns so far.