WSJ article on investment activity in the residential market

Wall Street is betting that more well-off Americans will want to be renters.
Financiers who loaded up on homes after the housing bust for pennies on the dollar are buying yet more—despite home prices in many markets being at all-time highs.
House HuntersBig rental-home investors have increasedtheir home buying for the first time since2013.Single-family homes purchased byinstitutional investorsSource: Amherst Capital ManagementNote: Estimates based on public sales records; actualtotals may be higher.
2010’12’14’16010,00020,00030,00040,00050,00060,00070,00080,000
Their wager: High prices, higher mortgage rates and skimpy inventory are making homeownership harder. Well-to-do families who might have bought a single-family home in another era are willing to rent a house now, especially if it means access to a good school system.
The number of homes purchased by major investors in 2017 was at least 29,000, up 60% from the previous year, estimates Amherst Capital Management LLC, a real-estate investment firm that made nearly 5,000 of those purchases.
That marked the first time since 2013—when investors like Blackstone Group BX -0.48% LP’s Stephen Schwarzman and Barry Sternlicht of Starwood Capital Group gobbled up foreclosed homes—that investors bought more houses year-over-year. Single-family homes have become far more attractive to investors than apartments, where a nationwide glut has driven down rental yields.
Ramping UpThe fastest growing markets for rental-homeinvestments in the 12 months ended March2018Percentage increase in number of investor-owned single-family homesSource: ATTOM Data Solutions
90%474743363535343332Green Bay,Wis.MyrtleBeach, S.C.Sevierville,Tenn.Syracuse,N.Y.Anchorage,AlaskaCharleston,W. Va.Daphne, Ala.Roanoke, Va.Clarksville,Tenn.-Ky.Savannah,Ga.
This year, investors have raised billions of dollars from bond buyers, pension funds and even wealthy Chinese individuals to purchase more homes. They have been particularly aggressive buyers in places like Atlanta, Phoenix, and other metro areas with good schools and faster-growing economies.
On Monday, the investment firm Pretium Partners LLC said it had raised more than $1 billion so that its Progress Residential could add to its 26,000 rental homes. Pretium was founded by a former Goldman Sachs Group Inc. executive who helped oversee the bank’s lucrative bet against the housing market a decade ago.
Cash to acquire and renovate homes has become so abundant lately that some rental investors can’t spend it fast enough. Without enough homes to buy, some investors are now building their own in popular residential markets like Miami and Nashville, Tenn.—upending a traditional pattern of Americans buying starter homes and moving up.
“The American dream no longer includes homeownership,” said Jordan Kavana, chief executive of Transcendent Investment Management LLC, a south Florida firm that has been a big acquirer of rental homes. “You will earn your equity in other ways, not your home.”
StrongholdsMetro areas with the most single-familyhomes owned by institutional investorsSource: Amherst Capital ManagementNote: Figures are estimated, as of year-end 2017.
33,48813,20912,96212,15612,20711,80910,4828,0727,8447,745AtlantaPhoenixMiamiTampa, Fla.DallasCharlotte, N.C.HoustonIndianapolisOrlando, Fla.Chicago
Transcendant says it has secured more than $250 million, mostly from wealthy Chinese individuals, that it will use to build thousands of rental homes in the Southeast. A Canadian investment firm said it is teaming with a U.S. pension fund and a sovereign-wealth fund to enlarge its home-purchasing program over the next three years by about $2 billion, enough for perhaps 12,000 houses.
“We’re seeing a wider variety of investors coming into this asset class: sovereign-wealth funds, insurance companies, hedge funds, pensions, asset managers,” said Sandeep Bordia, Amherst’s head of Research and Analytics.
Managing far-flung clusters of homes—much harder than running an apartment building—has long been a hurdle for investors. But analysts and rental executives say investors are gaining confidence it can be done profitably. Also, wealthier tenants in the single-family-home market typically have children and need more bedrooms than most apartments offer. They’re also willing to accept rent increases to stay in good school districts.
These investors’ war chests have been swelled by rising home prices, which give them more valuable collateral to borrow against to buy more. Transcendent’s fund will add about $750 million of debt on top of investors’ $250 million or so, giving the firm spending power of about $1 billion over the next three years. Mr. Kavana expects to develop as many as 3,000 homes for his predominantly Chinese clients, each of whom will hold title to specific properties.
“They get that this is a linchpin of the American economy,” he said.
Toronto’s Tricon Capital Group Inc. said that $750 million of the roughly $2 billion it plans to spend will be committed in equal portions by its California home-rental unit, a U.S. pension and a sovereign-wealth fund. The rest will be borrowed.
Invitation Homes , the industry’s 83,000-home heavyweight created by the combination of Messrs. Schwarzman’s and Sternlicht’s rental ventures, last month sold the largest ever rent-backed bond. The houses that Invitation borrowed $1.3 billion against were valued at 26% more than when they were used as collateral in earlier bond deals, according to Kroll Bond Rating Agency.
American Homes 4 Rent , the country’s second largest single-family rental owner, has been adding houses with proceeds from $500 million of unsecured debt the Agoura Hills, Calif. company sold in January. That was the sector’s first such deal.
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Demand from the industry’s biggest players has sparked a rush to emulate and feed them houses. Bruce McNeilage, who sold 42 houses in suburban Nashville to American Homes in 2015, has since flipped another 400 or so in middle Tennessee and around Atlanta to larger landlords. He’s building dozens of houses in both regions and buying in the Carolinas, some to sell and some to rent out himself.
Mr. McNeilage had planned to slow down, but local lenders offered financing that was too favorable to pass up, particularly when rents are rising and he’s being hounded by institutional investors looking for houses to buy.
Quantum National Bank, for instance, recently sent Atlanta-area landlords and flippers a memo advertising $10 million that it hoped to lend at promotional rates against rental homes, in chunks ranging from $150,000 to $1.5 million. Quantum CEO Bryan Cohen said the Suwanee, Ga. lender ran a similar special on rental-home loans this spring and the $10 million it offered was snatched up quickly.
“Right now there’s more money than deals,” Mr. McNeilage said. “I’ve got to find houses.”

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