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Real Estate Trusts

From a recent LA Times article

“After buying tens of thousands of single-family homes in beaten-down markets, major investment firms have quickly become major landlords”

New research from Morgan Stanley predicts that the buy-to-rent sector will grow from $17 billion now to $100 billion over the next several years. These companies have proved the business model viable and will be able to get debt financing to grow their stake in the suburbs, the analysts wrote.

Blackstone Group, the biggest player in the emerging industry, has already spent $5 billion through a subsidiary on 30,000 homes, according to the report Morgan Stanley published Wednesday. American Homes 4 Rent — an Agoura Hills company created by Public Storage billionaire B. Wayne Hughes — has spent $3.1 billion on a portfolio of nearly 18,000 homes.

The foreclosure crisis enabled the firms to buy distressed properties en masse, often at bargain prices. Meanwhile, individual home shoppers have often struggled to get approved for mortgages and compete with investors’ cash offers.

The net effect is surging home prices — and predictions that more Americans will turn to renting, further boosting the prospects of the new investor-landlords.

“We expect home ownership to continue to decline for the next few years,” the Morgan Stanley analysts wrote. “While the stock of distressed housing has declined noticeably, it is still sizable enough to meet this growing demand for rentals.”

Now on solid footing, the investment groups should be able to tap new sources of financing — including packaging rental income streams into securities, similar to the way mortgages were bundled during the housing boom.

Many of those mortgage bonds went belly up in the subsequent crash.
But analysts nonetheless see securitization as crucial for the nascent buy-to-rent industry.

In what would be the first such security, Blackstone Group is reportedly planning to bundle monthly rental payments on about 1,500 to 1,700 of the homes it owns in a deal valued at $240 million to $275 million, the Wall Street Journal reported earlier this week, citing anonymous sources. Deutsche Bank, a major packager of risky subprime loans during the housing bubble, would structure and market the rental bonds to investors.

American Homes 4 Rent, meanwhile, on Wednesday was prepping the largest public stock offering of a company leasing single-family homes. The firm hoped to raise net proceeds of $770 million to $870 million by offering 50.7 million shares that were expected to be priced at about $16 or $18 each. An extra $75 million worth of stock is expected to be placed privately.

With those proceeds, the company will have no major debt, according to Green Street Advisor analysts, “a major positive that provides for significant flexibility.”

American Homes 4 Rent is the third and largest leasing company to become publicly traded, with the first two Silver Bay Realty Trust Corp. and American Residential Properties. Two other companies, Waypoint Homes and Colony American Homes, are also planning initial public stock offerings, according to the Green Street Advisors Report.”


“This is scary stuff. This is exactly how we got started in the last meltdown. As I said in 2005, what happens when renters don’t pay? There is no real way to really tell profit or return on investment. These people do not understand that it’s not the same as owning a few apartment buildings managed by sophisticated property managers. These are thousands of units spread out and the management will not be the same.

In addition, if you think that homeowners don’t pay, wait until you see what tenants do and don’t do. They leave more often, and it’s a nightmare getting an eviction in ca. If everything goes right it’s a minimum of 4 months. If you get a sophisticated tenant it can be much longer. These companies are going to lose money from what they don’t know.

In a few years its meltdown time again when the bonds prove worthless. …   pr.”




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Here we go again — 4 Comments

  1. I agree with everything you said Phyllis. The only maybe good thing may be there will be thousands of new foreclosures from wall street? Or maybe not as they are all free and clear or are they? Anyway they will not make as much profit on the rentals as we experienced investors do.

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