Though the specific identities of the winning bidders have not been made public, The Federal Housing Finance Agency is reporting that the winners have been chosen in the initial round of bidding for some 2,500 single-family properties owned by Fannie Mae.
According to FHFA, the winners were chosen after a “rigorous” evaluation process that looked at the financial strength of each potential bidder, their experience with asset management and rental property management, as well as existing experience in the geographic location of the properties in each pool. The largest single pool of properties in this round was approximately 572 homes located in Atlanta, GA.
All of the transactions for this initial round of bidding are expected to close early in the third quarter. The FHFA has declared this first round to be a success, and is planning other sales in the near future.
This project, if it were to continue, would represent something of a “water-shed” moment in the single family rental property business. Fannie Mae has over 200,000 such properties that they ideally would like to sell back into private ownership. But small investors who’ve been the backbone of the traditional single family rental market are not eligible to bid on these pools.
The qualified bidders for the FHFA managed bulk REO sales are generally larger competitors with major funding from venture capital firms on Wall Street. This would represent a major shift in the dynamics of the single family rental market and could make it more difficult for smaller investors to compete in some areas.
At present, winning bidders will be required to hold their properties for 3 years as rentals before they can be sold. It is hoped that this will help stabilize housing prices locally by keeping the houses occupied instead of vacant, and a lengthy holding time will avoid too many houses being “dumped” on the market at once, which could drive prices even lower in the affected areas.
It remains to be seen how well these properties will cash flow for their new owners. It will take another couple of years before anyone really knows how well this program will work out at the private investor level. But it is reasonable to assume that the prices paid for these properties is well below the typical prices available to individual investors, thereby giving them an unusual opportunity to generate significant positive cash flow for their new owners.