Ellington Management Group LLC, the $5.3 billion investment firm founded by Michael Vranos that specializes in mortgage-backed bonds, is moving into the rental- home business.
Ellington has raised $140 million to buy properties through a private real estate investment trust, according to an e-mailed statement from the Old Greenwich, Connecticut-based firm. The company will buy and renovate single-family homes as well as acquire and resolve soured multifamily mortgages. It’s already bought or is in contract to purchase 550 houses.
Ellington joins private-equity firms led by Blackstone Group LP (BX:US) and Colony Capital LLC that are buying foreclosed homes to rent in the regions hardest hit by the U.S. housing crash. Investors are seeking to profit from low prices on distressed properties and rising demand for rentals from people who have lost houses to foreclosure, can’t qualify for a mortgage or don’t want to own.
“We are excited about the housing recovery investment opportunity,” Leo Huang, chief executive officer of Ellington Housing, said in the statement today. The firm’s “mortgage expertise will help us to target and time markets,” according to Huang, who joined Ellington from Starwood Property Trust in January 2011. He was previously co-head of commercial real estate lending at Goldman Sachs Group Inc. from 2004 to 2008.
The U.S. homeownership rate fell to 65.4 percent at the end of 2012, matching the level last seen in 1997 and down from a peak of 69.2 percent in June 2004, the Commerce Department reported. New York-based Blackstone, the world’s largest private equity firm, has spent more than $3.5 billion to purchase 20,000 single-family rentals. Tom Barrack’s Santa Monica, California- based Colony Capital has raised $2.2 billion.
Institutional investors buying real estate have helped push up prices, with the S&P/Case-Shiller index of property values in 20 cities climbing 8.1 percent in the 12 months through January. It was the biggest year-over-year advance since June 2006. In Phoenix, prices rose 23 percent from the year-earlier period. The 20-city measure is still 29 percent below its 2006 peak.
Firms that own single-family rentals are raising additional funds through initial public offerings and increased borrowing from banks. American Residential Properties Inc., a Scottsdale, Arizona-based single-family rental company, said last month it is seeking to raise $300 million through an IPO. Silver Bay Realty Trust Corp. (SBY:US), a Minnetonka, Minnesota-based REIT, raised $245 million in an IPO in December, and American Homes 4 Rent, the housing landlord headed by Public Storage founder B. Wayne Hughes, said in February it planned to sell shares to the public for the first time.
In March, Blackstone expanded a credit line to $2.1 billion from $600 million to buy rental homes.
“Prices have increased off a very low base, and it’s growing increasingly competitive, but we are still finding opportunities to buy,” Devin Peterson, a Blackstone real estate associate overseeing the company’s housing initiative, said last month in an interview. “We recognized that prices were moving faster than people expected.”
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