Between the recent FHFA auctions of Fannie and Freddie foreclosures, and the appearance of mega-investment companies buying individual properties at local foreclosure auctions, the dynamics of the rental property business are changing rapidly.
Waypoint Real Estate Group, LLC of Oakland, California has already secured a $65 million dollar loan from Citigroup. And according to a recent article in the Wall Street Journal, they are looking to purchase a total of 11,000 single family homes over the next few months.
Waypoint is said to be working on securing even more capital from Citigroup over the next few weeks and has already gotten a $250 million dollar loan from GI Partners as well. It’s getting rather obvious that the big capital companies are ready to give the traditional mom and pop real estate investors some serious competition in the biggest foreclosure markets.
Colony Capital LLC has opened it’s own investing company, known as Colony Homes. Colony just dropped a total of nine million dollars at the September 2012 foreclosure auction in Atlanta, GA, spending all of it in just seven metro Atlanta counties. Gwinnett county in metro Atlanta saw Colony buy three million dollars worth of foreclosures at a single auction. Colony already has around 3000 rentals and is looking to buy another 7000 single family properties over the next few months.
Frustrated with the slow pace of packaged pools of properties, for which investment performance can be difficult to predict, the big investors have decided on a strategy to target individual properties with the better locations in hard hit foreclosure markets like Atlanta, Chicago and Phoenix.
And hold on to your hat…there is talk that the streams of rental income from these properties could be the next big thing in securitization. Isn’t this what almost brought the entire economy to it’s knees in 2008? Yet the banks and the investment companies have made it clear that this could be their next move – securitization of rental income streams.
Wow, just when you thought the housing market might actually be stabilizing, now we hear that this new investing scheme is taking shape. Personally I think that the idea of securitizing rental income is just one step away from total insanity. And if they do, the final step toward global economic annihilation will be to have some credit default swaps handy just in case the tenants don’t pay the rent.
Where is Dodd-Frank when you need it? I’ll bet that there is NOTHING in D-F that would prevent this type of investing strategy – buy up the properties, get them rented, then package up the leases into a nice tranche of “safe” securities and sell them off to your favorite pension fund. Oh yes, happy days are here again for the banking industry. Not only are they able to unload REO’s at a frantic pace, driving up prices for foreclosures, but they’ll securitize them and make another fortune in the process. After all, Uncle Ben Bernanke, the patron saint of bank bailouts is looking down from financial heaven to bless their efforts through QE3.
On thing is for sure, this will have a big impact on the rental property business. It’s not your “mom and pop” rental market anymore. The level of funding and competition from big capital market players is unprecedented. It’s going to add more inventory to the rental market at a much faster pace, in a market where the supply is already exceeding real end-user demand. It’s a feeding frenzy for the “great whites” of the real estate investing world.
The traditional little “bottom feeders” need to beware, the big fish are moving in to swallow you up.
Donna S. Robinson is a real estate licensee, investor, author and speaker in Atlanta, GA. Follow her on twitter @donnaconsults and read her blog at www.RealtyBizConsulting.com