Unstructured Finance

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.

But now it’s time for retail investors to get in the game too.

Late last year two firms that are buying foreclosed homes and renting them out went public—Silver Bay Realty Trust (SBY) and Altisource Residential Corp. (RESI). Silver Bay, set up as a real estate investment trust, raised $245 million in its December IPO. Altisource Residential is a spinoff of Altisource, a real estate portfolio management company, and is buying both non-performing mortgages and single family homes at foreclosure auctions.

In the coming weeks, American Residential Properties, an Arizona-based acquirer of foreclosed homes, expects to soon file for an IPO. But the most anticipated IPO in this burgeoning market will be one from American Homes 4 Rent, which ranks right behind Blackstone in gobbling up foreclosed homes. Last week, the Malibu, Calif.-based firm, led by Public Storage founder Wayne Hughes, issued a press release saying it will soon filed for an IPO.

Morning Line-Up: BlackRock bullish, IPOs, Tower Australia


News and views on the asset management industry from Reuters and elsewhere:

BlackRock founder upbeat on growth potential – FT

Institutional investors to shun high-price IPOs – Times

Australia’s Tower  accepts Dai-ichi’s $1.2 bln bid – Reuters

Results revive Man

Some good news for Man Group this morning as its shares soared 6.5 percent on this morning’s full-year results.

Asset levels were actually down since the end of March (from $39.4 bln to $39 bln), but such have been the outflows from Man’s funds that these figures imply a stabilisation of assets and, according to Credit Suisse, zero net outflows.

Man still isn’t fully benefiting from the renewed investor appetite for absolute return funds that much of the wider hedge fund industry is seeing, but investors are taking heart from today’s update.

Can this hybrid jump-start the IPO market?

nyse1One of the biggest criticisms made of the IPO process is that investment banks turn around and flip hot new stocks for a big, quick profit, crowding out institutional investors with a longer attention span, and showing with no regard for a company’s long term prospects.

But Menlo, California-based InsideVenture, which is backed by major venture capital firms such as Venrock and Frazier Ventures, major institutional investors such as T Rowe Price, and even the New York Stock Exchange, thinks its new Hybrid Private-Public Offering (HPPOs) method of launching IPOs, introduced this week, is a way around that problem and a way to spur a recovery in the IPO market.

Here’s how an HPPO would work: small and mid-cap companies would still have to file standard IPO registrations with the U.S. Securities and Exchange Commission. But the company would then work with InsideVenture to allocate about half the shares to its existing shareholders and any of the 225 long-term fundamental investors that are InsideVenture members. Once it had lined up a roster made up of enough long term investors, the company would launch its IPO.

Every Cloud…

Creative Destruction?As politicians and regulators worldwide prepare a new blueprint to marshall the hedge fund industry, the organisers of the GAIM industry conference release the early agenda for their annual Monaco pow wow.

Unsurprisingly, the June 16-18 summit takes the theme: Transformation In A New World Order. And even less surprisingly, several sessions are set to ponder how to best snag a new breed of circumspect investors, and how to adapt to a new regulatory environment.

There are some introspective moments scheduled too; some 25 minutes are given over to an examination of governance and risk management lessons learned in the wake of the Madoff scandal. And after we heard last week that some investors are already convincing funds of funds to drop a layer of performance fees, another 25 minute slot will have delegates hear how they should be aligning compensation with the interests of investors.

Staying positive

rtr23yfeThere seems to be an endless wave of bad news hitting the hedge fund industry at the moment — gates and suspensions, record poor performance, the Bernard Madoff scandal and so forth – but there are still one or two reasons to be positive.

According to a survey of institutional investors by alternative assets data group Preqin, conducted in January (and therefore after the alleged Madoff fraud came to light), only 8 percent said they were no longer confident about hedge funds and would reduce investments.

By contrast, 26 percent said they would be increasing their allocations this year.