Discussing investment opportunities on CNBC last February, Berkshire Hathaway\u2019s Warren Buffet said, \u201cIf I had a way of buying a couple hundred thousand single-family homes and had a way of managing\u2014 but the management is enormous.\u00a0 It\u2019s really the problem because they’re one by one. They’re not like apartment houses.\u201d<\/p>\n
If the Oracle of Omaha<\/a> considers the \u201cmanagement problem\u201d to be enormous, it\u2019s certainly a priority for every real estate investor, whether they manage their properties themselves or with a professional management firm.<\/p>\n With the entry of dozens of hedge funds into the REO-to-rental business, the role of professional property managers has changed forever.\u00a0 No longer are they largely invisible managers responsible to a relatively small number of apartment owners and REITs<\/a>.\u00a0\u00a0 They have become the stewards of a new asset class that promises to present an important investment opportunity for massive institutional investors in addition to individual and private equity investors who are achieving rates of return as high as 12 percent.\u00a0 Often overlooked and undervalued, property managers today are being recognized by more and more business leaders who realize they hold the keys to unlock the potential wealth in the single family rental sector, which today is already a seven billion dollar business.<\/p>\n In response to pressure to establish a new secondary market for securities based on single family rentals, last year each of the big three leading securities ratings agencies\u2014S&P, Fitch and Moody\u2019s\u2014 made clear that the quality and accountability of property management will be an important\u2014if not the most important\u2014factor determining how they will rate securities based upon single family rentals. Their ratings will determine the prices and value; securities that rate low or fail to get a rating at all may not sell.<\/p>\n These ratings firms are in the business of identifying and assessing risk for investors and they use what they find to rate securities offerings for investors.\u00a0 Taking a look at how they view single family rentals might be instructive for investor\/landlords who are interviewing property managers.<\/p>\n All three of the securities ratings firms issued opinions last year and all three cited the quality of property management as a critical factor to the risk involved and therefore the rating of SFR backed securities.\u00a0 The said clearly that offerings will be rated based on the quality of their property management and that quality will be determined by multi-year track records.<\/p>\nA New Role for Property Management<\/h2>\n
How are Property Management Companies Rated?<\/h2>\n