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Lewis Goodkin
Jordan Kavana
Real Estate in Florida
Landlord Inc.
Big investment firms are buying Florida single-family foreclosures in bulk, expecting to profit twice: First by renting out the homes and then by reselling them in a few years.
By contrast, Goodkin says, the investors buying single-family houses can expect “a lot of cash” from rent right from the beginning. “And when the market is appropriate, they will sell at a nice profit.”
Funding for the investment groups is coming from myriad sources, ranging from pensioners to wealthy foreigners to public investment groups. Alaska’s $40-billion state oil fund, for instance, recently made a $600-million investment in American Homes 4 Rent. “There are billions and billions of dollars being raised in this marketplace right now — it’s an on-fire segment,” says Scott Kranz of Title Capital Management in Miami, which is spending $200 million to buy up Florida foreclosures.
Debt financing is also beginning to crop up. Last October, Waypoint Real Estate Group, an Oakland-based investment firm, borrowed $245 million from Citigroup to help build its portfolio of homes for rent. The deal, according to the Wall Street Journal, “may serve as a precursor” to the development of “the first security backed by home-rental payments.”
Several factors have eased the investment groups’ push into the single-family market. One barrier was the fact that single-family homes typically go on sale randomly rather than in clusters; in addition, available homes at any time are often spread across a large geographic area. Trying to buy large numbers of homes at a given time wasn’t practical for big investors, says Jack McCabe, an independent housing analyst in Deerfield Beach.
Now, McCabe says, the banks and the government — via the Federal Housing Finance Agency — are packaging and selling foreclosed homes in bundles, making it much easier to invest at scale. “It also used to be that houses were auctioned off on the courthouse steps,” he adds. “Now it’s done online and a lot of these guys have software and agents who actively monitor these things.”
While each investment group has its own specific set of parameters, the typical home is a three-bedroom, two-bath model that at the peak of the real estate bubble might have sold for $250,000. The same home can be purchased now for between $100,000 and $150,000.
While some investors, like American Homes 4 Rent, are focusing on relatively new subdivisions built within the last decade or so, buyers like Blackstone are purchasing older homes as well.
Key to making the numbers work is getting homes in good condition in favorable locations. A typical three- to four-bedroom, 1,500 to 2,500-sq.-ft. foreclosure requires about $10,000 to $15,000 in repairs, according to American Home Real Estate Partnership, a Georgia-based group that has been buying and renting single-family homes since 2009. Kattan says his company is spending nearly twice that sum on rehabs in hopes of boosting sales prices down the road. “Why just put lipstick on a pig when for $10,000 or $15,000 more you can put in new floors? It’s better to do it right now.”
Along with consultants like Goodkin, local businesses in Florida are cashing in on the trend.
Title Capital Management in Miami also offers what Kranz calls a “ready-built foreclosure infrastructure” to institutional funds and other investors. Title Capital Management conducts all the auction bidding, short sales and acquisitions and handles title and lien searches. Kattan also purchases properties for his own $100-million portfolio while providing remodeling/maintenance and management services to other investors. Kattan says he can help institutional investors accomplish what they want far faster than they can scale up an operation on their own. “This is a very hands-on, boots-on-the-ground type of asset class, and these guys are more like Guccis and loafers on the ground — they’re trying to managing these things from corner offices in New York.”
Even investors who handle their own acquisitions typically turn to local management companies like Rent Solutions in Tampa to manage the rentals — collect rent, perform maintenance, etc. “We manage so many homes that we can get discounts” from contractors and other vendors, says Steve Oehlerking, president and broker at Rent Solutions.
Betty Morgan, director of asset portfolio management at Prudential Tropical Realty in a four-county region of Tampa Bay, says property management for institutional investors comprises a “significant portion” of her company’s new business.
The trend is a boon to bankers happy to be able to dispose of foreclosures in bulk rather than singly. “It helps the banks unload problem assets in bulk to these large investors, pleasing regulators wanting these loans off the books and also shareholders wanting a bank with a cleaner portfolio,” says Ken Thomas, a Miami-based banking expert and economist. “The banks, however, must have the capital to withstand the big discount that some of these ‘carpetbagger’ investors are demanding when they buy in bulk.”
