Bloomberg News

Single-Family Rental Demand to Remain as Market Recovers

November 29, 2012

Single-family rentals will remain a long-term opportunity for private-equity funds and institutional money managers even as the U.S. housing market recovers, analysts and investors said at a conference today.

“We think this is a multiyear opportunity and there should be growth,” Jade Rahmani, an analyst with Keefe, Bruyette & Woods Inc., said at conference in Scottsdale, Arizona, organized by Information Management Network. “There should be adequate supply.”

Private-equity firms including Blackstone Group LP (BX:US) and Colony Capital LLC are raising as much as $8 billion to buy as many as 80,000 single-family homes to manage as rentals, taking advantage of rising demand for leasing and property prices that are about 30 percent below their peak, according to Rahmani. Blackstone is spending about $100 million a week on single- family homes, Chairman Stephen Schwarzman said on an Oct. 18 earnings conference call.

Investors can buy rental properties for the long-term cash flow or to resell in a few years as housing prices recover, said Gary Beasley, a managing director at Waypoint Homes, which has acquired more than 2,500 properties in California, Arizona, Illinois and Georgia.

Waypoint, which received a $245 million line of credit from Citigroup Inc. in October, expects to increase its portfolio to 10,000 residences worth about $1.5 billion by the end of 2013, Beasley said. The Oakland, California-based company is developing a staff to acquire, fix up and manage the properties it buys, he said.

“We’re long-term greedy,” Beasley said.

Tight Credit

While demand is increasing from buyers who want to occupy the properties they purchase, strict lending standards are keeping many would-be homeowners out of the market, Beasley said.

An index of pending home resales climbed 5.2 percent in October from the previous month, exceeding the highest estimate in a Bloomberg survey of economists, figures from the National Association of Realtors showed today in Washington. The median price of an existing home sold last month jumped 11 percent from a year earlier to $178,600, the steepest annual increase since November 2005, according to the group.

Household formations increased to an annual pace of 1.15 million in the third quarter, driving down the vacancy rate for rental homes to its lowest level since 2002, while the rate for owner-occupied properties dropped to 1.9 percent, a level last seen in 2005, according to the Census Bureau.

“It’s a massive asset class,” Beasley said. “One year ago, there was almost no institutional capital. Today, there’s $6 billion to $8 billion. Two years from now, we’ll be where multifamily was in the early ’90s.”

Fewer Foreclosures

The source of rental homes for investors has changed as banks bring fewer foreclosures to market, said Laurie Hawkes, president of American Residential Properties Inc., a Scottsdale- based investor in single-family properties with more than 1,500 homes in five states.

“Short sales are where we obtain a lot of our product now,” Hawkes said, referring to a transaction in which a bank allows a home to be sold for less than what’s owed on it. Hawkes’s firm raised $223.9 million in a private offering completed in May, bringing its total purchasing capacity to $500 million with debt.

A securitization market for single-family rental capital probably will develop in the next few years as large pools of real estate develop a track record, according to Hawkes, Beasley and Rahmani.

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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