Private equity money still pouring into single-family housing
A few days ago, Cerberus Capital announced they were seeking to raise more than $500 million for rental homes. Cerberus, which manages its single-family properties through FirstKey Homes, owned 11,000 homes at the end 2017, making it the fifth-largest owner of rental houses. FirstKey Chief Executive Officer Martin Esteverena has previously described plans to build a portfolio of more than 40,000 homes.
Today, Bloomberg ran a story, which outlined plans for Amherst Holdings LLC to raise more than $1 billion to buy single-family rental homes.
Despite all of the ostensible gloom that has been creeping into the residential housing market, institutional investors are still actively acquiring single family houses. Instead of looking for instant equity gains these private equity firms and single family REITs are staying in it for the long-term as rents continue to escalate.
Large investors started acquiring single-family rental
homes following the U.S. housing crisis, when institutions
including Blackstone Group LP and Tom Barrack’s Colony Capital, Inc. assembled portfolios through foreclosure sales. Wall Street’s acquisitiveness cooled as the supply of distressed
properties ran out. Institutional demand is picking up again as
aging millennials trade apartments for rental abodes to house
their young families.
Bloomberg – Amherst Seeks More Than $1 Billion for Rental Houses (August 22nd)
While patriot radio was warning of catastrophe, the single-family housing market was being permanently restructured
In the wake of the 2008 real estate collapse, while the average person on the street lost their appetite for acquiring single-family residential housing, large institutional money began buying tens of thousands of foreclosed single-family houses. The auspicious opportunity existed for the first time as price plummeted.
Recall all the disinformation that was being spread on the alternative-media. As recently as 2015, people like Dave Kreiger and Lindsey Williams were frequent guests on the Power Hour and Alex Jones Show and were scaring the listeners and keeping them away from buying real estate. They claimed the Mortgage Electronic Registration System (MERS) provided no proof that a holder of a mortgage-backed security held title to a foreclosed home. Thus, these charlatans admonished the listeners that if a mortgage was originated after 2002 and went into foreclosure there would be a good probability that there was a cloud on the future title.
A similar refrain was portrayed on ZeroHedge.com and was picked up all over the alt-financial media and even by the attorneys who wanted to make an industry of it. Even Martin Armstrong got into the act at the time.
The whole irony is that title insurance is specifically designed to cover these potential defects. Unfortunately, the fear selling worked very well and many prospective homeowners were effectively shut out from owning a home at a decent price. Instead of purchasing their future home to live in, they procrastinated as institutional money began to drive prices higher.
Opportunities still exist, but be careful
In many areas of the country this institutional money is slowly taking over the supply/demand dynamic and a permanent rent-slave class is beginning to emerge and grow. Of course, this is being done by design. Despite the Obama regime’s rhetoric of looking out for the common man, President Obama signed legislation just before he left office that allowed the debt of these private equity firms to be backed by Fannie Mae and the other federal housing agencies.
This effectively allowed firms like the Blackstone Group to borrow at much more competitive rates; similar to what a homeowner could borrow with a 30-year mortgage. Thus, Obama’s legislation drastically lowered the cost of capital for much of the institutional money directed toward single family housing. By lowering their cost of capital, this expanded opportunities available to the institutional money as they could now scoop up tens of thousands more houses than they could have previously.
It has been my contention that this process will continue and is being done by design. Thus, it would be in someone’s best interest to continue to build a residential real estate portfolio like the smart money is doing.