Article
Courtesy of The Tampa Tribune By Michael
Sasso
Published July
15, 2013
TAMPA
- Voracious real estate investment firms that are buying up thousands of homes
in Florida and beyond hope to raise billions of dollars to buy even more homes
with a wave of expected initial public stock offerings.
Up to now, many of the firms have lived off money from pension funds, other big
institutions, wealthy people and some loans. Florida's state pension board, the
State Board of Administration, for example, has $400 million invested in two
such funds run by giant private equity firm Blackstone Group and
California-based GI Partners.
If
the buying spree continues, with ever-rising prices for homes,
one player in the business foresees problems.
"It's scary," said Jordan Kavana, whose Miami-based
investment firm, Transcendant Investment Management, owns homes
in Florida and the Southeast. "Honestly, we see another
bubble coming."
The biggest trend in Florida real estate these days, and perhaps
nationwide, is the emergence of hedge funds and private equity
firms buying up single-family homes.
They're purchasing them almost any way they can: buying
foreclosed homes directly from banks or Fannie Mae; through
public foreclosure auctions; and through real estate agents. |
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Today's
big trend in Florida real estate, and perhaps nationwide, is the
emergence of firms buying scads of single-family homes such as this
one in Riverview and then renting them out for cash flow.
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Sometimes, firms buy in order to flip them quickly. But many are taking a
longer-term approach by buying them cheaply, fixing their defects and renting
them out for cash flow. In several years, they hope to profit greatly by selling
them off when home prices escalate enough.
The Tribune tallied up the purchases of six of the largest players in this new
industry and found they have purchased at least 2,228 homes in Hillsborough
County for about $320 million, as well as 422 homes in Pinellas County for $54
million.
The biggest player by far is Invitation Homes, a relatively new company
controlled by private equity firm Blackstone Group. It bought 1,390 of those
homes for $191 million, according to property appraiser records from both
counties.
Some people argue the investment firms are relatively small players in the local
and national rental-home business, and that mom-and-pop investors hold the
lion's share of rental homes. However, some Florida real estate experts worry
about the investors' ravenous appetites lately.
About 46 percent of all single-family homes purchased in Florida in May were
cash purchases, Florida Realtors statistics show. Some of them were bought by
families that will live in the houses, no doubt, but it's presumed that the
majority were bought by investors, Florida Realtors chief economist John
Tuccillo said last month.
Jack McCabe, a real estate consultant and researcher in South Florida, thinks
the investors are bidding up prices on homes too high and squeezing out end
users, such as families that want to live in them.
"The appreciation here is artificial," McCabe said.
The latest wrinkle in the investor boom is the attempt by some firms to become
publicly traded companies to raise money to buy more homes, pay for necessary
home repairs or just to pay off some of their early investors. Most are choosing
to go public as a type of real estate holding company called a real estate
investment trust, or REIT.
So far, at least three companies have held initial public stock offerings and
raised cash since December: Silver Bay Realty Trust of Minnesota, Arizona-based
American Residential Properties and U.S. Virgin Islands-based Altisource
Residential Corp. Silver Bay appears to be the most active among those three in
the Tampa Bay area, with at least 231 homes in Hillsborough and Pinellas
counties. It raised $245 million in its December IPO.
However, Kavana, the South Florida investment manager, said at least six other
single-family home investment firms are thought to be weighing an IPO. They're
being prodded to go public by investment banking firms that earn big fees for
underwriting IPOs. For example, St. Petersburg-based Raymond James &
Associates was among the firms that took American Residential Properties public,
and it's among those expected to underwrite the stock offering for American
Homes 4 Rent, news releases and regulatory filings show.
Bankers have tried to coax Kavana to take his company, Transcendant Investment
Management, public, but he's resisting. Where publicly traded companies will be
under pressure to sell off their homes to make a quick profit, his company's in
business to rent out homes for the long term, he said. He wouldn't disclose how
many homes Transcendant owns, but said it's "several thousand."
"Look, we're not in this to make a quick buck," he said. "To be
sure, we're profit-motivated."
Among companies that have filed paperwork to go public are three firms that,
combined, own hundreds of homes in the Bay area: Waypoint Homes Realty Trust and
American Homes 4 Rent, both of California, and Colony American Homes of Arizona.
Silver Bay was unable to comment last week, because it's in a quiet period ahead
of an earnings release, a spokeswoman said, and American Homes 4 Rent did not
return a call.
Investors have cooled toward the three companies since they went public. Silver
Bay's stock price was down about 8 percent since its debut as of late last week,
while American Residential Properties' stock was down 14 percent and
Altisource's was down about 5 percent.
How much hotter the investor market can get in Florida is a big question. At
least one additional investor is eyeing the Tampa and Florida markets to buy
single family homes.
Berkley Acquisitions of New York is considering jumping into the single-family
home rental business under the assumption there are enough foreclosed homes and
other rentable homes available to go around.
The biggest threat to the growing industry is rising interest rates, said
Berkley Acquisitions executive Eli Braha.
Eventually, investors are going to want to sell the homes they're renting out,
but if interest rates keep rising, families won't be able to afford them, Braha
said.
Some people think the market is getting too crowded with too many investors,
though. Kavana estimated that for every $1 in housing that is available for
purchase, there is $10 in investment money chasing it. So, for every $100,000
home that is available to purchase, investors representing a combined $1 million
in capital are going after it.
A healthier ratio would be $2 or $3 in investment money for every $1 of
available housing, he said. The huge number of investors in Florida has helped
to push the price of housing up by 20 percent or more over the past year,
according to recent Florida Realtors figures.
Kavana's firm, Transcendant Investment Management, has bought homes in the Tampa
area in the past, but has backed off for the past few months. In part, that's
because prices are rising.
"We're going to have to buy at prices that still make sense," he said.
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