Unstructured Finance

Home sweet home, Blackstone

Kay Chapman and her boyfriend were saving up money to buy a home in the Las Vegas metro area while renting a home in a nearby town. But after months of plotting a strategy to buy a home at a foreclosure auction, they’ve given up for now and will soon move into another rental home–this one owned by private equity giant Blackstone Group.

Chapman and her boyfriend had to alter their strategy because the owner of the home they are currently renting from decided to sell after seeing how quickly home prices have surged in Sin City in the wake of all the institutional buying firms like Blackstone. Chapman’s current landlord wants far more for the house than she and her boyfriend are willing to pay.

So soon they’ll be moving into a Blackstone owned home, one of some 26,000 single-family homes the private equity giant has bought in US markets hard hit by the housing bust.

Chapman was one of the people featured in a Special Report detailing how the rush of money from Wall Street firms like Blackstone has created a buying frenzying for single-family homes in Las Vegas. The story examined the phenomena of fast-rising home prices in Sin City and other parts of the U.S. hard hit by the housing bust — much of which stems from big investors flushed with cash and starved for yield.

When I met Chapman and her live-in boyfriend during a visit to Las Vegas in early March, she told me they had gone month-to-month on a home they were renting in Enterprise, Nev. (a town on the southern fringe of Las Vegas) because they were hoping to buy something at one of the daily foreclosure auctions. But the couple quickly found just how difficult that was as the price of homes either got bid up by Blackstone and other buyers or they came to the auction lacking  the proper paperwork.

Spinning single-family home investments into mortgage-backed securities

It’s generally been thought the main exit strategy for Wall Street-backed firms that are buying distressed homes to rent them out, is to convert to a REIT and file for an IPO. That attempt to cash-out on the single-family home trade has obvious benefits for the big institutional buyers but risks for retail investors as the math behind the buy-to-rent model becomes increasingly suspect.

But there’s another potential exit strategy for the institutional buyers beyond converting to a REIT or flipping homes earlier than anticipated and that’s becoming a home lender.

In Las Vegas, where the institutional buyers have been quite active the past six months, there’s talk about firms like Blackstone Group eventually providing financing to prospective buyers looking to acquire one of their single family homes. Buyers like Blackstone won’t comment on speculation about their single-family home management subsidiaries becoming defacto mortgage lenders. But it makes sense, especially in the case of Blackstone, which now owns more than 25,000 homes nationwide and says it intends to hold onto the homes and rent them out for several years.

Cash is king in housing

By Matthew Goldstein

It’s no secret that housing in the U.S. has become an investors market, especially if it’s an investor with cash to burn.

For more than a year now, we and just about everyone else in the financial media have been writing about how Wall Street-backed firms are looking to buy-up the wreckage of the housing bust on the cheap and rent out those homes until the time is right to sell them for a sweet profit. And it should come as no surprise that much of that buying is being done with cash because it’s the easiest way for an investor get a deal done quick.

Recent stats from the National Association of Realtors shows that 32 percent of all single family homes in the U.S. are being bought with that cash. But that’s not just foreclosures; it also includes homes listed by brokers. It’s a testament to how much money institutional investors like Blackstone and American Homes 4 Rent have been able to raise from high-net worth investors and others. all of whom are chasing yield in this low-yield world.

The retailization of the single family home rental play

By Matthew Goldstein

It started slowly but the push by Wall Street into the single family rental market is fast becoming a Main Street play as well.

Last year, one of the big stories on Wall Street and in the U.S. housing market was the push by institutional investors to raise billions of dollars to snap-up foreclosed homes and rent them out while waiting for the right time to sell them. It’s become the biggest “long” bet on housing for private equity giants like Blackstone, which has already spent close to $3 billion buying up more than 16,000 foreclosed homes.

And with Wall Street firms all projecting they can get an 8% return from renting out the the homes they acquire, the foreclosed home market has become a great yield play for yield-starved wealthy investors.

The dollars keep rolling in for foreclosed home funds

By Matthew Goldstein

Today, The Wall Street Journal reports that foreign investors have caught the gold rush mentality that surrounds the market for foreclosed homes in the U.S. But domestic-based firms are still doing quite well themselves in raising big dollars to buy-up foreclosed homes with an eye to renting them out before eventually selling them.

A foreclosed home fund managed by Tom Barrack’s Colony Capital recently disclosed in a regulatory filing that it had raised $536.7 million from 54 “accredited” investors. The fund relied on JPMorgan Chase’s wealth management team to do some of the selling.

Colony, along with private equity giant Blackstone Group and Malibu, Calif. based American Homes 4 Rent, have emerged as the three biggest buyers of foreclosed homes over the past year. Blackstone has spent well over $1 billion on buying up roughly 16,000 homes, and American Homes, backed by $600 million from the Alaska Permanent Fund, isn’t far behind.

The gold rush in foreclosed homes picks up steam as mad money flows freely

By Matthew Goldstein

Institutional money keeps rushing into the market for foreclosed homes, with some big players snapping up homes at breakneck speed. But the question is whether the big buyers are throwing money around indiscriminately and Wall Street’s big housing long will come up a bit short.

The other day Bloomberg reported that Blackstone Group has already spent $2.5 billion to buy 16,000 homes to manage as rentals and eventually sell them when prices appreciate high enough. Blackstone says it’s finding that the going price for homes sold at foreclosure auctions and out of bank inventories are rising quicker than anticipated.

But Blackstone, which some believe could spend up to $5 billion on single family home space, isn’t alone in racing to snap-up foreclosed homes in states like Florida, Georgia, California, Nevada and Arizona. American Homes 4 Rent, a firm that has $600 million from the Alaska Permanent Fund, is buying up hundreds of homes a month, industry sources say. Colony Capital, the other big institutional player is no less aggressive.

What investors can look for in 2013

By Matthew Goldstein and Jennifer Ablan

Big money managers do not always agree–that’s what makes a market–but if there was one consensus coming out of our just concluded Reuters Investment Outlook Summit, it’s that next year will probably be another bang up one for the bond market.

Now the credit markets will have a tough time repeating the kind of numbers put up this year, especially with the Federal Reserve doing its darndest to push down borrowing costs and yields by buying  mortgage backed securities and even Treasuries. Speaker after speaker who joined us in New York said “junk” bonds, corporate debt, mortgage- and commercial-backed securities and even Treasuries “on a trading basis”  should do well for no other reason than credit markets still aren’t showing anything close to the kind of froth we saw in the run-up to the financial crisis. The sense is that it may be another 2 or 3 years before we see excesses build up in the system again.

Oh sure, there are exceptions such as, bonds being sold by companies to pay special dividends to their private equity backers (several speakers said to avoid these). Other guests also are wary of the junk bond market, noting with yields coming down the risk to reward premium isn’t looking as good as it did earlier this year. And at least one speaker said he would avoid mortgage REITS because there’s too much leverage baked into their holdings.

Some Hedge Funds Throwing in Keys as “Landlords”

By Matthew Goldstein and Jennifer Ablan

All year the big money has been talking up one of the more intriguing trades to emerge from the housing crisis: buying up foreclosed homes in large scale and rent those out for several years and then unload them when the price is right. But questions about the so-called rent-to-own trade are being raised now that an early mover in the space, hedge fund giant Och-Ziff Capital, is looking to cash in its chips now and is abandoning the idea of operating foreclosed homes as rental properties for years to come.

Now we’re not quite ready to declare the foreclosed home rent-to-own trade is dead as the tireless, prolific financial bloggers at ZeroHedge did in a good riff on our exclusive story on Och-Ziff’s decision. But Daniel Och’s concern that the income to be generated from renting out foreclosed homes may not be as high as originally anticipated bears close scrutiny because it could spell trouble for other hedge funds, private equity firms and smaller money managers counting on rental income to generate an annual 8 pct or greater return on investment.

Way back in March, when we first wrote about all the big money that was racing into the foreclosed home market, we noted that some were concerned that a lot of the newer entrants might not really up to the challenge of managing and renting single-family homes for the long haul. Historically, the business of buying, rehabbing and renting foreclosed homes has been a mom-and-pop endeavor, conducted by people with strong community roots. The skeptics wondered whether institutional players were too blinded by the potential to capture yield and overlooking the challenges that comes with bringing often vacant foreclosed homes up  to code and habitable conditions.

FHFA is not on an REO speed wagon when it comes to full disclosure

By Matthew Goldstein

The FHFA continues to reveal as little as possible about its pilot project of selling foreclosed homes to private investors in bulk sales.

With surprisingly little fanfare, the Federal Housing Agency announced this week that Pacifica Companies, a little-known San Diego investment firm, is the first company to emerge as the winner in the pilot project. Pacifica is buying 699 single-family homes that are part of Fannie Mae’s REO portfolio in Florida.

In the coming weeks, FHFA says it will announce the winning bids for bulks sales of REO homes in California, Arizona and Illinois as part of the much-hyped pilot project to sell 2,500 foreclosed homes. The agency that regulates Fannie and Freddie Mac says there will be no winning bid for some 541 homes it was planning to sell in Atlanta. The agency didn’t offer an explanation.

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