A version of this article first appeared in the CNBC Property Play newsletter with Diana Orrick. Property Play covers new and evolving opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large publicly traded companies. Sign up to receive future editions directly to your inbox.
New housing laws have been enacted that prohibit institutional investors from purchasing single-family rental homes, and those same investors are now putting up more “for sale” signs.
The number of institutionally owned homes for sale has more than doubled this month since the beginning of February, according to analysis provided exclusively to Property Play by real estate data provider Particle Labs.
On February 1, when Parkle began full-scale research, there were 4,166 properties listed, but now there are 9,447 properties with a total asking price of $3.1 billion.
“The rate of change in selling prices is noteworthy,” said Jason Lewis, co-founder of Parcl Labs. “Given how long sales cycles are, these numbers may not be reflected in actual transactions for several months, but they provide the earliest read into institutional behavior.”
The law defines an institutional investor as an investor who owns 350 or more housing units. This was a surprise for an industry that had traditionally set its standard at 1,000 units. It does not force you to sell your current home, but it prohibits you from buying any more homes unless you meet certain exceptions, such as building and renting.
Lawmakers’ accusation was that these investors, most of whom were able to buy homes all in cash, were driving up prices and sidelining typical owner-occupier buyers. Calls for a ban were bipartisan.
Large investors first entered the market during the 2008 financial crisis, when foreclosures were rampant and bulk auctions were held in the hardest-hit markets such as Atlanta, Las Vegas and Phoenix. In a short period of time, private equity firms have purchased thousands of homes and converted them into rental housing, creating a new single-family rental asset class.
Investor groups that own 350 or more homes and are therefore subject to the new law currently own about 589,000 units, or 3.9% of the 14 million single-family rental homes in the United States, according to Parkle. They account for approximately 40% of year-to-date net sales.
Largest landlord — Progress Residential; invitation housing, AMHTricon, First Key, Amherst and Vinebrook are all net sales year-to-date, with 3,180 more homes sold than purchased since January 1st. Considering that, they still own about 400,000 homes, so with one exception, this isn’t exactly a liquidation sale. VineBrook currently has nearly 10% of its portfolio on the market, with approximately 1,900 homes sold for a total asking price of $285 million.
Two publicly traded single-family rental REITs, Invitation Homes and AMH, sell 549 and 536 homes, respectively. The largest landlord, Progress Residential, has the fewest of the big players, with just 143 properties for sale.
“It’s now widely recognized, both by the overwhelming majority of the White House and by members of Congress, that private capital plays a very large role for the portion of the American population that wants to rent a home,” Pretium co-president Stephen Shah said in an interview on CNBC’s “Squawk on the Streets” last week. Pretium is the parent company of Progress Residential.
Progress is currently being made, focusing on areas that the new law allows and for which the industry fought hard during the legislative process.
“We can buy build-to-rent, which is the main component of new housing. We can also buy under a variety of other exceptions, including rent-to-renovate, which improves the housing stock. We can also buy under the Home Ownership Facilitation, which gives people the opportunity to transition from renters to owners where they want to be,” Shah said.
The build-to-rent movement has gained significant momentum in recent years as demand for single-family rental homes increases.
AMH began building its own homes in early 2017. The company says it has developed more than 14,000 rental housing units in 180 communities. Invitation Homes acquired Atlanta-based homebuilder Resibilt earlier this year.
“With the foreclosure mandate lifted, lending has changed dramatically. Lenders are once again able to underwrite (build and rent) housing, and that’s starting to happen,” Chris Nebenzahl, vice president of rental research at John Burns Research & Consulting, said in a report.
The selling investor is offering a discount on the property. According to Parcl Labs, 38.7% of all properties currently for sale nationwide have been reduced in price, compared to 54% of single-family rental properties for institutional use. Since early May, price reductions have widened from about 3.1% to 4% of the asking price. Meanwhile, 54% of investor listings in the 350+ home category have seen price reductions.
“Given the state of U.S. home prices, what we can say is that some of this is likely due to a change in strategy: collecting high dollar value from the top U.S. home prices by weeding out underperforming assets and redirecting that capital to growth areas, from construction to rentals,” Lewis said in a statement, adding that we would know over the next six to eight weeks.
