The U.S. housing market collapse and resulting field of distressed properties put millions of homes up for grabs and bargain prices, many of which were snapped up by institutional investors. New reports indicate that many of those investors are already ready to cash in on those buys in the form of securitizations and IPOs. Some real estate investment trusts are launching IPOs, while others are making smaller sales. Some large investors, however, are holding onto their properties and even collecting more. Analysts say the good news is that home prices are still appreciating in places where those investors are scaling back on purchases, which is a sign of a healthy market. For more on this continue reading the following article from National Real Estate Investor.
Some investors that built up pools of single-family homes are already beginning to cash in through IPOs, securitizations and portfolio sales.
Blackstone Group has put together a securitization backed exclusively by income from single-family rental properties—Invitation Homes 2013-SFR-1. The $500 million deal bundles rental homes into securities where the rental payments will be passed through to investors.
Blackstone has invested heavily in the sector and acquired the largest single-family portfolio in the country, some 30,000 to 40,000 homes and invested $7 billion in the sector. The homes it acquires are offered for rent through a venture called Invitation Homes.
Blackstone’s move come four months after American Homes 4 Rent conducted an IPO to raise about $800 million. American Homes 4 Rent has a portfolio of nearly 20,000 single-family homes—the second largest in the country. American Homes 4 Rent this month announced a second public offering of 4.4 million preferred shares to raise another $110 million.
Two other smaller single-family housing REITs include Sliver Bay Realty Trust and American Residential Properties Inc. Another firm, Colony American Homes, canceled a planned IPO in June.
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Others have looked to flip assets through smaller portfolio sales. For example, Oaktree Capital put a portfolio of 500 homes up for sale in late September.
According to RealtyTrac, entities that control portfolios of at least 100 homes have purchased 75,000 single-family homes since 2011. Of those 75,000 homes, more than a quarter have already been resold by the investors who bought them.
Investors that have cashed in have benefited from single-family home prices that have improved sharply. The S&P/Case Shiller composite index of 20 metropolitan areas rose 0.9 percent on a seasonally adjusted basis from July to August. Compared to a year earlier, prices were up 12.8 percent, marking the strongest gain since February 2006, when the increase was 13.8 percent.
The Long Haul
Investors with smaller portfolios count for the bulk of re-sales. The largest investors, including entities that have purchased more 1,000 homes apiece since 2011, have only resold about 1 percent of their homes.
“It looks like the big guys are holding on,” says Daren Blomquist, vice president for data firm RealtyTrac. “They seem more committed to the model of buying the homes and renting them out.” This model is not totally dependent on price appreciation to work. For investors that have bought more than 1,000 homes since 2011, only 36 percent of the homes they bought were in some stage of foreclosure at the time of the sale; 37 percent were “underwater,” meaning the property value was less than the amount owed on the mortgage. The remaining 27 percent were conventional sales—many of the homes were listed for sale on the multiple listing service.
“They are gobbling up properties any way they can,” says Blomquist.
In September, institutional investors accounted for 14 percent of all single-family home sales, according to RealtyTrac. That’s up from just 9 percent last year.
In 2011 and 2012, these institutional buyers focused on the markets recovering most quickly from the housing crash. Top markets for these institutional investors included places like Phoenix, Ariz., and Bakersfield, Calif.
“It’s surprising that the institutional investors continue to go to more and more property markets to acquire these properties… we continue to see the institutional investment continue to go up,” Blomquest says.
These investors are no longer buying in many California markets, especially along the Pacific Coast. “They’ve been priced out,” says Blomquist. Even in Sacramento, when investors bought 14 percent of single-family homes in Sept. 2012, investors accounted for only 7 percent of sales a year later. Instead, these investors are now focused on cities like Atlanta, where the recovery is at an earlier phase.
The good news for the housing market is that even after institutional investors cut back on their purchases in markets like Sacramento, home prices have continued to appreciate in those places. “There was a concern that institutions were inflating home prices,” says Blomquist. “We’ve seen a drop off in the pace of appreciation, but those prices are still appreciating.
This article was republished with permission from National Real Estate Investor.