Single Family Gold Rush

Even as home prices recover, private-equity firms continue bulking up on capital to buy homes, renovate them and rent them out. The latest to do so is Thomas J. Barrack Jr.'s Colony Capital LLC, a Los Angeles-based investment firm. On Friday, the company's housing unit, Colony American Homes, closed on a $500 million line of credit—which could expand up to $1 billion—from J.P. Morgan Chase & Co., according to the company.

Other housing investors have tapped major Wall Street banks over the past year as well. Blackstone Group LP, the largest single-family-home landlord, has taken out $3.6 billion in loans from a group of lenders led by Deutsche Bank LP, while Waypoint Real Estate Group LLC, a smaller investor, borrowed money from Citigroup Inc. last year to buy homes.

"We continue to be very bullish on this opportunity," said Justin Chang, Colony American's CEO. "We're still in the early days."

Colony is buying between 1,000 and 1,500 homes a month in cities from Georgia to California and has so far amassed a portfolio of 15,000 homes at a cost of more than $2 billion since April 2012.

Big Money Investors Continue Gobbling up Singe Family Rentals:

The 9/3/13 WSJ piece above about Colony Capital $1B credit facility for acquisition of single family homes raises two questions.

The effective single family residential (SFR) moratorium that became a fact of life in 2006 and thereafter has now created a good circumstance for many home sellers.  Short supply, continued family formation, historically low interest rates and resultant pent-up demand are driving SFR price resurgence.

Question 1:  To what extent is the market for SFR distorted by those influences that may be one-time, transitory conditions, such as:

- pent-up demand

- low but increasing interest rates

- non-traditional buyers (Wall Street) 'ginning up the marketplace

- Congressional restructuring of the role formerly played by Fannie and Freddie in the SFR mortgage market

Question 2:  Will increasing SFR housing prices, tighter financing requirements and interest costs rebound to benefit multifamily owners?

The SFR buyer pool is getting crowded. The likes of Colony Capital, Blackstone and publicly funded funds are jumping into a crowded pool to chase SFR acquisitions.  Opportunistic public funds, Wall Street and mega-Banks are a potent potion.

Last time that gang ganged up on an asset class the asset class inflated and then burst.

ANSWER GUIDE

Answers to Questions 1 & 2:

1.  You make your own call

2.  Yes - regardless of your answer to Question 1.

Jack Harty

jharty@harty.biz