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The Ten Greatest Real Estate Investor Stories of 2013

by Steve Cook on January 3, 2014 · 11 comments

  
Invest in Real Estate

My first job out of college was covering state politics for the biggest radio-TV station in Wyoming.

Yes, I had a mustache, fluffy hair and wore a bright orange Polyester blazer with the station’s logo sewn boldly on the breast pocket just like Ron Burgundy, who wouldn’t be created until 40 years later, after I had found other ways to make a living.

I still think of myself as journalist, so when the end of the year rolls around, I don’t do predictions or New Years’ resolutions.  Instead, I like to get ready for the year to come by putting into perspective the events of the year past.

We’d probably all agree it’s been a heckuva year.  In many ways, real estate investing is a different business than it was 12 months ago, what with hedge funds, disappearing distress sales, rental rates that came through as predicted in most markets and the housing recovery hitting high gear, making it harder to acquire but easier to flip, for those so inclined.

So here are my top ten.  Do you agree or disagree?  Or perhaps you’ve got some better ones for the list? Chime in with your contributions in the comments section below.

 1. Blackstone’s Invitation Homes marketed the world’s first REO-to-Rental bond.  Securitization always has been keystone of most hedge funds’ business plans, whether they will admit it or not.  Clearly the industry leader, Blackstone paved the way with a  $479.1 million security serviced by rent checks from 3,207 properties. (See Pay Day for Hedge Funds).
2.The real estate recovery arrived in force, raising rents, property values and the price of acquisitions.  For investors, the recovery was mostly blessing, not a curse.  Rising home prices in most of the nation’s markets also boosted rents, putting smiles on landlords coast to coast.  Though most investors resisted the temptation, any “accidental” landlords would not resist the temptation to sell when price increases and inventory shortages hit double digits, especially in red hot Northern California.  As the year ends, the price parade is cooling off and most experts look for much more moderate appreciation in 201.

3. State foreclosure politics changed the geography of investing.  The “sand” states, birthplaces and incubators of modern real estate investing, suddenly became expensive and crowded.  Pioneers headed North and East to find better prices and bigger selections of foreclosures in judicial states where laws delay processing and allow time-consuming appeals.  RealtyTrac’s latest listing of the 20 top markets for foreclosure discounts included Pittsburgh, Mobile, Richmond, Canton and Minneapolis.  Michigan, Ohio, Maryland, New York and New Jersey are becoming the new hot spots for as long as their inventories last—which should at least through 2014.

4. Federal Reserve economists put investors in their crosshairs.  Last fall two top Fed economists  published a new study on investment in single family rentals.  Their findings could help convince policy makers that all investors are a force for economic instability that could, in future, help provide fodder for years to those who would like single family rentals converted back to owner-occupancy.

Above all, they pointed out that large investors are creating a new dimension of risk. “Many large investors say that they plan, in time, to sell their entire portfolios of houses and the associated management platforms to entities that will continue to manage them as rental properties, rather than selling homes one-by-one on the owner-occupied market. Some of the largest investor portfolios may go public as real estate investment trusts, or REITs, in order to tap into a broader investor base, which includes both individuals and institutions such as mutual funds and pension funds… However, investors’ use of debt may rise over time as revenues increase and stabilize, and net incomes become positive. (Federal Reserve Economists Zero in on Investors)

5. REO REITS created a new asset class category on wall street and a new way to invest in residential real estate.  A handful of new Real Estate Investment Trusts, led by Silver Bay Realty Trust of Minnetonka, Minn found a new way to raise the cash they need to compete with the private equity funded hedge funds.  Silver Bay went public in December 2013 and raised $245 million.  Within the year it was followed by American Residential Properties in May and American Homes 4 Rent in July.  Two more, Waypoint Homes and Colony American Homes, have filed for IPOs.

6. Foreclosure activity in November fell to the lowest level since December 2005.  Folks like Washington Mutual and Countrywide were still happily selling mortgages to anyone with a pulse and the nation’s economic leaders were almost all blissfully blind to the coming subprime disaster.  RealtyTrac’s latest foreclosure report is a bit of a stroll down memory lane.  Now that foreclosures have come full circle, aside from the markets mentioned above, its highly unlikely they will return in such numbers. Delinquencies are at decade-lows due to tight lending standards an ability-to-pay regulations like the QM Rule, which takes effect this month.

7.  Hedge funds start shopping on the MLS.  With no more foreclosures or short sales top buy, what’s a hedge fund with billions burning holes in its pockets to do?  Somewhere along the line, the funds discovered it’s cheaper to manage rentals if they are close to each other rather than spread all over town (duh) (See Tracking the Hedge Fund Big Dogs: Buying from the MLS).  Will that lead to hedge fund ghettos?  Blackstone Bungalows, Wayside by the Seaside or Colony’s Colonials?

8. Short sales fade away.  Born out of necessity and plentiful only when lenders got tired of long lead times and endless carrying costs, short sales virtually faded away in the final months of 2013.  Buried in a September news release from Lender Processor Services was a notation that the number of short sales had fallen 60 percent from a year ago, a fall from grace twice as steep as distress sales overall.  Ironically, in some markets short sales have become less expensive than foreclosures (REOs) in a number of markets where distress sales inventories are tight and where investors, including large hedge funds.  (The Short Life of Short Sales).

9. An uptick in high end foreclosures turns the spotlight on high end flipping.  A new study by RealtyTrac found that the number of ultra high-end properties worth more than $5 million with a foreclosure notice rose 61 percent from the same time period in 2012 to a total to date of nearly 200 properties, a tiny percentage of the 1.2 million homes that went into foreclosure this year.  However, these 192 homes represent a 61 percent increase of super high end defaults over 2012.  There’s nothing new about luxury home flipping but now it’s turning into a specialty.

10. Investors bring about the SFR lifestyle.  Almost invisibly, Americans are renting in new ways.  Families now can choose to rent and enjoy most of the benefits of ownership.  Young families just starting out have more options to rent before they are in a position to buy.  These and other lifestyle changes are made possible by the 14 million single family rental available to consumers today; more than ever in history.  (How Single Family Rentals are Changing the Way America Rents).

Conclusion: What to Expect in 2014

Next year we expect to see designers take the single family renter seriously with lines of furniture, décor, table ware and linens designed with the SFR family in mind.  They’ll be flexible, portable and go well with the earth tones landlords like to use to hide wear and dirt.

The year to come will bring obvious news that we all can anticipate—and you can read about them elsewhere in forecast and  production articles.  What keeps life exciting are the surprises that each new year has in store and pops on us when we least expect them.  I can hardly wait.

What do you think the biggest story for real estate investors was in 2013? Leave your comment below!

Photo: thinkpanama

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{ 11 comments… read them below or add one }

Al Williamson January 3, 2014 at 11:21 am

Nice round up Steve. Thanks for your insight.

I’m under the influence of Story #10. My family realized that we wanted the freedom of a SFR lifestyle. We’re selling our home and going to become renters. Homeownership is not all that it’s cracked up to be. Plus we own enough rentals not to miss out on any beneficial bubbles.

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Michael Sadler January 3, 2014 at 11:42 am

Really awesome recap; In true journalist fashion!

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Steve Cook January 3, 2014 at 12:10 pm

Al and Michael;

Thanks for your kind words. Have a great 2014!

Steve

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Giovanni January 3, 2014 at 1:16 pm

Nice post Steve, love your proposed names in #7-

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Robert Adams January 3, 2014 at 4:20 pm

Nice year in review Steve Cook. The big story in Vegas this year was continued appreciation in the double digits, rising inventory (finally) in Q3. And now with the decrease in inventory in December it will be interesting to see if the inventory will continue to decrease and keep us in a seller’s market or if it will increase and push us back into a buyer’s market. thanks for posting!

Best Regards,
Robert Adams

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Robert Adams January 3, 2014 at 4:23 pm

I cannot edit so I will just add this. Inventory skyrocketed in Q2, Q3, and continued through November.

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Gerald Harris January 3, 2014 at 7:09 pm

I remember in 2010 when i was an agent in California. My goal was to help people in foreclosure. Short sales was my niche. Its great to have a heart to help people but dealing with the banks as we all know was near impossible. Many people who lost their homes didn’t have to. Some had nothing to do with the subprime fallout. 1 couple I represented had their home for 55 years. They were in their 80’s. I still feel that loss till this day. Till this day I still don’t understand why banks just don’t rewrite the note against the foreclosing property that was foreclosing. only 25% of people were qualifying for Loan Mods. Sad situation.

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Roy Schauer January 5, 2014 at 11:26 am

Gerald, I hear you there. I’m in a smaller community but our local “big bank” tells people they will help with loan mods and then stalls them for 6 months to a year while still expecting the homeowner to make pays on time. If they get behind, then they tell them they can’t help until the loan is reinstated completely. We have found a different solution for homeowners here but it only works for certain situations. So we can’t help everyone at this time and it’s very sad to see what some of these people are going through. Can’t say some people haven’t done it to themselves, but a very small portion are actually getting any kind of solution from a bank.

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Mark Ferguson January 5, 2014 at 8:28 am

Nice Steve! We will see any even bigger drop in short sales if the debt foregiveness act is not renewed. I keep hearing from my sources Reo will increase in 2014, but who knows.

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John Thedford January 6, 2014 at 8:05 am

Thanks for the great article! All of your choices for the top stories of 2013 are right on the mark!

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Steve Cook January 6, 2014 at 8:15 am

Mark and John,

Thanks for your kind comments.

Mark, that’s an interesting point about REOs. The crazy thing about REOs today is that they vary so dramatically by market. Some places (Minneapolis, Baltimore,Florida) may be seeing record numbers this yerar…but it will be very temoporary phenomenon.
I think short sales are history no matter what happens in Congress since lenders are tired of them and can make more money off an REO in today’s markets. In market after market, I’ve seen the gap between REO and short sales prices evaporate.

Steve

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