Foreclosed Homes Group Investment Booming

In March 2012 it was reported that the Federal Housing Finance Agency was considering selling off foreclosed homes in bulk, with high-profile investors, private equity and hedge fund firms apparently keen to buy up these properties, some with the intention of cashing in on the growing market for rental accommodation by becoming landlords. Having lost their homes to foreclosures, many Americans are forced to pay rent for alternative housing and the FHFA’s first offering of 2,500 foreclosed homes in Chicago, Los Angeles, Atlanta and Phoenix drew a response from more than 4,000 investor groups that appeared undeterred by the possibility of being branded as vulture investors.

Over the past year private equity and hedge fund firms have been investing billions in buying real estate owned (REO) homes in bulk. An analysis by data and analytics specialists CoreLogic in their March MarketPulse report details REO activity in sixteen major US housing markets, highlighting some interesting trends. Defining institutional investors as entities that have bought five or more properties in a year, the analysis set out to establish whether the REO activity was being generated by individual investors or institutional investors. The results revealed that by targeting specific markets in cities that were hardest hit by the housing crisis, institutional investors have been decreasing foreclosure inventories, leading to noteworthy increases in prices and consequently larger market upticks. Cities identified as having increased REO activity include Los Angeles, Atlanta, Phoenix, Las Vegas, Sacramento and Detroit.

At 23% Phoenix has experienced the highest price increase on REO homes, with the share of institutional investors in the city climbing from 16% in 2011 to 26% in 2012. Buying up dozens, if not hundreds or even thousands, of distressed homes, investors have fixed them up and are renting them out as a long-term investment strategy. In a recent interview on CNBC, Blackstone Group’s chief executive and chairman, Stephen Schwarzman, noted that the private equity company is currently the largest owner of individual houses in the US, having sunk about $3 billion into the property rental business.

JP Morgan Chase offers selected clients the opportunity to add rentals to their portfolio, and Berkshire Hathaway has made known its plans to expand into residential real estate. Other players cashing in on buying up foreclosed homes include Waypoint Homes, BlackRock, Apollo Global Management, and Oaktree Capital Group.