Hello friends,
In the aftermath of our country’s previous recession (2007-2008) Invitation Homes, at the time a subsidiary of investment bank Blackstone, along with others spent $36 billion acquiring 200,000 homes across the country. A majority of these were bought via foreclosure sales, which occur when homeowners default on payments either to their lender or to the local municipality. Traditionally these homes are then bought by flippers, who in some way improve the property prior to selling on to an end user i.e. new homeowner. This time was different however, as there would be no sale. This period marks the first meaningful introduction of institutional players in the residential real estate rental market.
Fast forward over a decade and many of the same trends seen heading out of the Great Recession are playing out again exiting the pandemic. Invitation Homes, now a publicly traded company, has become the largest owner of single family homes in the country. Private companies like Progress Residential and Main Street Renewal raise funds in the hundreds of millions of dollars with the sole purpose of buying homes to rent directly to individuals and families. Not wanting to be left out, pension funds have also entered the landlord game.
Why is this happening? Whether it's a private equity firm in NYC or a teachers pension fund in California both organizations are obligated to generate a return for stakeholders. The challenge these days is where. Money market rates hover around half a percent and long term treasuries are only a full percentage point better. Allocation into equity markets (stocks) can only be so high, as volatility can be severe. This type of climate causes alternative asset classes to be given additional consideration.
Historically single family housing has been difficult to earn a yield, especially if managing from afar. Technology has eased this burden, with large institutions realizing that by operating at scale they can capitalize on an asset class that is not only under supplied but also forecasted to increase in demand. Today roughly 1 in 5 home sales involve buyers who never intend to occupy the property. The next time you get outbid by an all cash buyer perhaps you too have experienced the impact of Wall Street.
What We're Watching
Monday May 31st - Memorial Day
Why It's Important: With origins dating back to the 1860s Memorial Day is much more than a day off from work, but a chance to celebrate all those service members who gave their lives for our country.
Friday June 4th - Average Hourly Earnings
Why it's Important: Lack of child care, fears over returning to the office and enhanced unemployment benefits are the top reasons pointed to by employers as to why they can't fill job vacancies. Increased pay appears to be the best carrot.
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NYS Fair Housing Notice
Steven Luttman
Broker/Owner SJLincoln Realty
35 Bath Street, Ballston Spa NY 12020
(518) 309-8584