FHFA announced earlier this month that the planned bulk sale of Fannie Mae REO's in Atlanta, Georgia has not produced a winning bidder. But this does not mean that Atlanta's huge stock of foreclosures are not selling. In fact, large, well funded investment companies are pursuing individual auction sales instead, buying up tens of millions of dollars worth of foreclosed homes over just the past two months.
In Georgia, the foreclosure auctions all take place on the same day - the first Tuesday of each month. At each courthouse in each county, various foreclosing attorneys will "cry out" dozens to hundreds of homes each month. Since the foreclosure crisis began, metro Atlanta has seen the average number of monthly foreclosure auctions go from less than two thousand to more than five thousand in a single month.
Metro Atlanta is comprised of some 13 different counties, and is one of the largest metropolitan areas in the world in terms of total square miles. In short, there are a lot of foreclosed homes going on the auction block each month. The FHFA pool of 572 homes is just one small island in a sea of foreclosures.
The investment companies coming to Atlanta to buy up distressed and foreclosed homes have access to hundreds of millions of dollars, and in just one day, on the first Tuesday in September, two different investment companies, funded by big banks like Citigroup, and the Capital Fund Blackstone, spent some nine MILLION dollars at the foreclosure auctions in just two counties.
According to reports published in the Wall Street Journal, investment companies have raised some eight BILLION dollars earmarked for buying up foreclosed homes. This is an unprecedented level of activity for homes that are being purchased for investment, and represents a major shift in the single family investment property market in Atlanta.
Local investors have also noticed the increased competition, in even far flung reaches of the metro Atlanta area, some 50 miles outside downtown Atlanta. I've heard reports from locals who regularly bid on properties at foreclosure auctions indicating that they have been seeing more and more competition from the big companies.
FHFA indicated that they were still accepting bids on their bulk package in Atlanta, but those with the capital to qualify for the FHFA program have instead chosen to pick and choose the homes they'd like to bid on by attending the courthouse auctions instead, where they can bid on the properties that they would prefer to have, as opposed to being forced to bid on a package that is likely to contain a sizeable percentage of properties that are in less desirable locations and are subject to the resale restrictions that have been placed on the bulk package bidders.
Virtually all of the firms involved have been created for the purpose of taking advantage of the opportunity in foreclosed homes, and few if any, as far as I can tell, have any previous experience owning and managing single family homes. The websites of many of these firms indicate extensive experience in multi-family properties such as apartments, resorts and so forth, but nothing about single family investing, which is an entirely different animal.
The firms hope to generate a return of around 8 to 10 percent on their investment, which sounds do-able, but 400 single family homes is much more cumbersome to manage than one large property with 400 individual units. It will be a challenge that will be interesting to watch unfold.
I'm still concerned that there is not enough demand to take up all of this supply. In Atlanta in particular, that was the original problem that led to so many foreclosures. Overbuilding combined with lots of renovation and speculative activity by private investors created an over supply of homes in the Atlanta market that I would estimate to be somewhere around 30% of the supply of available homes. I'm just not seeing sustained buyer demand from real end users who want to own and occupy these homes. Atlanta has had a tough time with unemployment since the recession began, and while the northeast sector has a strong corporate and technology job base, the oversupply problem was still significant there as well.
The bottom line on this will be whether or not these homes will rent for the rates that the major investment firms have projected, (which are somewhat high by Atlanta standards) and whether there will be enough employed tenants or owner occupant buyers to enable these companies to generate their projected profit margins. Management and maintenance costs could be significantly higher than projected.
Donna S. Robinson is a real estate investor, author and residential market analyst located in Atlanta, GA. Follow her on twitter at donnaconsults and read her blog at www.RealtyBizConsulting.com