TITLE: Welcome to the Neighborhood! Wall Street Designed It
https://www.wsj.com/finance/investing/welcome-to-the-neighborhood-wall-street-designed-it-70562612
EXCERPT: Big investors are bullish about America’s family homes. So bullish they are willing to build entire new neighborhoods as it becomes harder to buy houses from the usual channels. Interest rates are at multiyear highs and fewer homes are for sale as owners don’t want to give up their cheap mortgage rates. Homes are also eye-wateringly expensive. In October, prices hit a fresh record according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index.
Wall Street investors in housing can’t meet their return hurdles when both homes and debt are this costly. During the third quarter of 2023, big landlords that own anywhere from 100 to more than 1,000 housing units purchased just 1% of all the homes sold in the U.S. This is down from roughly 3% throughout 2022, according to data from John Burns Research and Consulting. America’s rental market remains dominated by mom-and-pop landlords, who buy nearly one-in-five of all the U.S. family homes that come up for sale.
But institutional investors want a bigger slice of the action. They already own 55% of all U.S. apartment units but see family homes as a more attractive bet. Rent growth is stronger for single-family homes than for apartments, and tenants tend to stick around for longer, especially if their children are attending local schools. On average, renters in single-family homes stay in their properties over four years, compared with two to three for apartment dwellers.
But the strategy that powerful investors such as Blackstone used to amass tens of thousands of family homes since the 2008 financial crisis is running out of steam. Picking off individual houses dotted around the country is time consuming, expensive and inefficient. “The scattered sites model has run its course. It worked when lots of houses were in foreclosure but it’s not the future of the industry," says Brad Case, chief economist for Middleburg Communities.
It is also harder for Wall Street players to get their hands on newly built houses in bulk these days. When the market is weak, home builders sometimes opt to unload finished houses to institutional investors at a roughly 10% discount if they need to wrap up a development. But this isn’t happening now. There is so little housing inventory available to buy that newly constructed homes are being snapped up immediately by regular buyers.
Increasingly, Wall Street’s solution is to build new neighborhoods of family homes where everybody rents. The model isn’t completely new: Clustered housing for students and senior citizens has been around for decades. The number of “build-to-rent" communities is still small, with 900 neighborhoods nationwide, each with an average of 135 to 150 homes according to a report by the Urban Institute. But the concept is growing fast. The National Association of Home Builders estimates that roughly 10% of new housing construction is destined for build-to-rent.
TITLE: ‘Swapping homes like stocks’: Wall Street-backed firm buys 264 valley homes in a day
https://www.reviewjournal.com/business/housing/swapping-homes-like-stocks-wall-street-backed-firm-buys-264-valley-homes-in-a-day-2976037/
EXCERPT: A Wall Street-backed corporate landlord bought hundreds of Clark County homes in a staggering one-off residential sale in summer 2023.
Miami-based investment firm Starwood Capital Group sold 264 homes in Clark County for $98 million to Dallas-based Invitation Homes (NYSE: INVH), according to Clark County property records.
The deal, made in three separate transactions, closed on July 18, property records show. The largest sale was $57.5 million for 155 homes, the second was $26.3 million for 70 homes and the third was $14.1 million for 39.
The majority of the homes sold are in the city of Las Vegas (94), followed by the city of North Las Vegas with 77. The price range for each home ranged from around $292,000 to $694,000, with the average price at $371,514.
The sale is part of a much larger deal between Starwood Capital and Invitation Homes, a $650 million swap for a portfolio of close to 1,900 single-family rental homes, with the vast majority being in the Sun Belt, including in Texas, Florida, Phoenix, Las Vegas and Los Angeles.
Wall Street-backed hedge funds, corporate landlords and cash rich investors have been buying up single-family homes across the country as far back as 2009, which experts say means fewer houses on the market for families to purchase. That also could lead to higher rental prices and fewer affordable homes in regions like the Las Vegas Valley. A MetLife Investment Management study shows these companies could own close to 40 percent of all U.S. houses by 2030.
Concerning the $98 million sale, an Invitation Homes representative said the purchase was part of a “larger portfolio acquisition across multiple markets,” but declined to comment further on the deal. As of the third quarter of 2023, the company had bought 2,291 homes for $854 million during the year, which includes the 264 homes in the Las Vegas Valley, according to its latest earnings report. Starwood Capital declined to comment on the sale.
Noah Herrera, a real estate agent who has worked in the Las Vegas Valley for nearly 30 years, said Wall Street-backed hedge funds and large corporate landlords first got involved in the housing market after the Great Recession in 2008-09 when real estate values bottomed out across the country.
Herrera said he worked with a few corporate landlords during the initial buying phase in 2008-09, and they told him they would resell what they bought in five years. But these landlords never put these houses back on the market, he said.
He said what scares him the most about corporate America getting involved in residential real estate is what are known as “rental-backed securities,” where companies like Invitation are selling to investors. The product has a lot of similarities to mortgage-backed securities, one of the downfalls of the housing market during the 2008-09 crash.
“They’ve turned these homes into collateralized rental obligations. They’ve collateralized them and what they’re doing is swapping homes like stocks for one another.”
TITLE: Wall Street’s growing housing stock prices out Latino renters, buyers
https://www.nbcnews.com/news/latino/wall-streets-housing-stock-leaves-latinos-struggling-buy-rent-homes-rcna131917
EXCERPT: Although massive housing purchases by corporations helped stabilize the housing market after a period of great crisis in the U.S., many experts argue that there are long-term consequences.
“In my neighborhood there are companies that are buying apartment buildings and using the pretext that they are going to make repairs to the homes and that is why people have to leave," Mario Fonseca, 30, an information technology specialist in Costa Mesa, California, said in an interview with Noticias Telemundo in October. "But when you ask at City Hall, these companies did not request any permit to fix anything, and what they do is paint the units and then rent them much more expensively.”
When there is landlord abuse, “most of America does not have enough protections to protect tenants,” said Madeline Bankson, housing research coordinator at the Private Equity Stakeholder Project.
Several legislators have proposed laws that regulate or limit the activity of Wall Street corporations in the real estate market.
In 2022, California congressional Democrats Roy Khanna, Katie Porter and Mark Takano introduced the Stop Wall Street Landlords Act to curb the role of institutional investors in the single-family home market and try to curb speculation.
“We have a housing crisis in the United States,” Khanna said in an interview with Noticias Telemundo. “I am the son of immigrants and my parents came to this country so they could buy a house so that their children could also have one. Now, the largest group that wants to buy houses is the Latino community. In my district, a third of all new home buyers, almost 480,000, are Latino, and yet, they are being left out.”
If passed by Congress, the legislation would impose a tax on new and existing purchases of single-family rentals by institutional investors. It would also prohibit Fannie Mae, Freddie Mac and Ginnie Mae from purchasing and securitizing mortgages held by large institutional investors who use debt to buy single-family homes and rent them out.
“Corporations are buying single-family homes precisely in the places where someone can get a new house for $200,000 $300,000, $400,000,” Khanna said. “My taxes should not help the capital funds. We have to return those properties to the people who want the American dream, like many in the Latino community.”
Last month, Rep. Adam Smith, D-Wash., and Sen. Jeff Merkley, D-Ore., introduced a bill in both chambers of Congress that would ban hedge funds and other investors from owning single-family homes.
The legislation would require hedge funds to sell at least 10% of the total number of single-family homes they currently own over a 10-year period and, after that move, would introduce a complete ownership ban.
“From a business perspective, the investments of these corporations have been incredibly profitable. That’s why there are a lot of dollars flowing into that market, and companies are prepared to continue increasing the number of homes they own," said Elora Raymond, an urban planner and assistant professor in the School of City and Regional Planning in the College of Design at Georgia Tech.
"Other countries have taken steps to require these companies to get rid of their investments and stop competing with people who want to buy their homes," Raymond said.
According to Bankson, the private equity model involves purchasing “undervalued assets” and then aiming to earn a return for their investors of 15 to 20% in a short period of time, usually between three and seven years, which is double the return of other investments.
This can produce very negative outcomes for tenants, Bankson said, since companies increase revenue and reduce costs by raising rents and evicting lower-paying tenants — and by adding more fees and fines on everything from garbage, sewer and water to parking and other things. Additionally, the landlord can impose significant penalties for late rent payments or other violations of the lease, she said.
In a 2019 study, Cornell University professor and researcher Suzanne Lanyi Charles found that corporate ownership of housing is closely linked to locations where foreclosures had taken place in 2007 and 2008, which greatly impacted Latino and Black communities.
According to Pew Research, Latinos lost 66% of their household wealth as a result of the housing crisis at that time.
“With respect to low-income Black and Hispanic neighborhoods, the effects of the housing crisis have shifted from concentrated single-family foreclosures to concentrated single-family rentals," Charles wrote.