Article Courtesy of The Tampa Tribune

By Michael Sasso

Published July 29, 2013

TAMPA - Investors eager to snap up homes while they're still cheap and rent them out may have a new obstacle to achieving real estate riches: homeowners associations growing anxious about the rental boom.
  
Across the Tampa Bay area, some HOAs are exploring restrictions allowing them to limit the number of rental properties in their subdivisions or giving them the right to vet a landlord's potential tenants.
  

Actually passing such restrictions is tough, because it usually means getting two-thirds or more of homeowners to approve an amendment to their HOA governing document. Still, it's not stopping several HOAs from asking their attorneys about limitations. Consider the case of Riviera Homeowners Association, an HOA for an upscale gated neighborhood in New Port Richey. A giant investment firm called the Blackstone Group bought a home in the gated community in December, according to Pasco County records, and put it up for rent. The Riviera Homeowners Association quickly notified it that community rules prohibit homeowners from renting out their homes until they have lived in them for two years, Riviera HOA President Joel Hershkowitz said. The home now appears vacant.

The Diamond Hill development in Valrico where Jennifer Robertson Call, head of the homeowners association, has mixed feelings about all the rentals. She's happy the homes aren't vacant anymore, but nervous if too many investors buy homes and rent them out.

"They did not do their due diligence and did not realize it was against the deed restrictions, so they took it off the market," Hershkowitz said.

The chief operating officer of Blackstone's single-family-home company, Invitation Homes, said the company tries to stay in compliance with all HOA rules.

"We manage each Invitation home based on its individual situation, and we always want to know when our residents or homes are not in compliance with CC&Rs (covenants, conditions and restrictions) so that we may take immediate corrective action," Chief Operating Officer Marcus Ridgway said. "It is important that we build strong, cooperative relationships to create vital neighborhoods."

The rise of "institutional investors" backed by billions of dollars from pension funds and public stockholders has become the biggest story in Tampa Bay area real estate and beyond. Through June, property records indicate six of the biggest institutional investors had purchased more than 2,600 single-family homes in Hillsborough and Pinellas counties in the past two years.

A few of the major players are Blackstone, American Homes 4 Rent, Colony American Homes and Silver Bay Realty Trust. They've bought in nearly every corner of the Bay area, but vast tracts of newer homes in Riverview, Brandon and Apollo Beach have seen the biggest investor rush.

In fact, the true number of homes being rented out is surely far higher than the few thousand in the hands of big investors, when you consider small investors and out-of-town homeowners who rent out their homes. No one really has a good handle on just how many single-family homes are on the market for rent or are rented out, said Bob Tankel, a lawyer who represents hundreds of homeowners associations in the area.

The rental surge is starting to make some neighborhood leaders uneasy.

Most HOA board members reached for this article see institutional investors as an overall positive for their neighborhoods. They often pay off past-due HOA fees and clean up foreclosed houses that have sat empty for months or years. For example, Blackstone Group and three other investment groups have bought up several homes in a 90-home subdivision called Brussels Bay near Riverview. They came in, spruced up some unsightly foreclosed homes and paid badly needed HOA dues that were in arrears, said HOA President Jeremy Menard.

"We as an HOA community got into some dire financial situations," Menard said. "We were pretty close to zero. It was pretty bad. Thankfully, we never got to rock bottom."

The question is whether the investors and the tenants they bring in are becoming too much of a good thing?

Dominick Scannavino runs an Oldsmar company, Management & Associates, that manages HOAs with some 25,000 housing units in the area. The investors active in his subdivisions seem to be relying on their tenants to care for the homes once they move in, and tenants, unfortunately, aren't complying often enough, Scannavino said.

One big investor sprayed weedkiller over a Land O' Lakes home's lawn and wound up killing all the grass, he said, apparently intending to replace the entire lawn. Instead, the investor appears to have forgotten about it, and the HOA has sent four letters to the company about it.

"I have to deal with HOA boards that cannot understand why things are taking so long," Scannavino said.

Another HOA manager, David Felice of Terra Management Services, said he's seeing similar problems in the communities he serves.

"I think the problems have been going on, but we haven't had the quantity of renters we have now," Felice said.

So far, relatively few HOA boards appear to have taken action to deal with the issue. But it's picking up as investors buy up more foreclosed homes and even many nondistressed homes. Tankel, the Dunedin-based HOA lawyer, said perhaps a half-dozen of his hundreds of HOA clients are considering some type of restriction on rentals.
  
Among neighborhoods thinking about it is Diamond Hill in Valrico. Like many other fast-growing communities in east Hillsborough County, this golf course community built by Ryland Homes got hot with small investors in the early and mid-2000s, said Diamond Hill HOA President Jennifer Robertson-Call.

The investors who bought and sold during Diamond Hill's early phases made money, she said. But by the time investors purchased in one of its later phases, in the 1100 block of one of Diamond Hill's main roads, Emerald Hill Way, the market was turning. Today, that phase still has a big share of Diamond Hill's foreclosures and vacancies.

Today, Emerald Hill Way is hardly as unkempt as some other streets hit by foreclosures, but some lawns in the neighborhood are overgrown and weeds creep out of the cracks in driveways.

Robertson-Call sees the rise of big investors as a plus for Diamond Hill. They've boosted property values by bidding up prices - her own home has risen in value by about 40 percent, in part because of investor purchases, she said. They've paid HOA dues that were in arrears and fixed up homes and put them up for rent.

Land records show Blackstone Group, American Homes 4 Rent and Fundamental REO have bought 14 homes along Emerald Hill Way since October. It's unclear how many small investors and out-of-town homeowners are renting out their homes in Diamond Hill.

Robertson-Call estimates 50 of Diamond Hill's 449 homes are somehow more transient than owner-occupied homes, whether they're being rented, sitting vacant or in foreclosure.

Despite the positives, she and her HOA board will talk with their attorney next month about possible restrictions on rentals.

"I can deal with 10 percent rentals, and I don't want it to get to 50-50," she said.

She admits it probably will never get to that point, though. The big investors have bid up prices so high in Diamond Hill that they're unlikely to buy many more homes there, she said.

In fact, Diamond Hill's HOA board may find it tough to enact any new restrictions, a few HOA lawyers said last week. HOAs can limit the number of rentals in a subdivision or require a two-year wait before renting out a house, such as the Riviera HOA in New Port Richey, But doing so requires the approval of a supermajority of homeowners, possibly two-thirds or three-quarters, depending on the HOA's established rules.

That can be an insurmountable hurdle to overcome for HOAs, which struggle to get apathetic homeowners involved in anything. How do you get that many people to support a new restriction, especially when some of the homeowners are investors? said Ellen Hirsch de Haan, an association lawyer in Clearwater.

In New Port Richey, the Riviera HOA board could be accused of overkill, because it's unlikely many investors would've purchased there anyway. It's a gated neighborhood with about three dozen homes that sell for more than $300,000 apiece, the very upper end of what most big investors want to pay.

The HOA took action a year or two ago when the owner of a home in a nearby subdivision split the home into several rental units. Riviera wasn't specifically targeting big companies such as Blackstone Group with its two-year wait rule, but Hershkowitz said the rules apply to big investment firms just the same.

"If a bulk owner came in, their main concern is income," Hershkowitz said. "They are not always concerned about maintaining an asset, and the renters are not always concerned about maintaining the asset."