What cities are the Hedge funds buying in ?

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Are Hedge funds buying in your city... should investors be following them and buying along side the Hedge funds with the hope of getting swept up in the anticipation of capital growth based on supply demand? Or are they wrecking it for locals and other investors by creating a frenzy and escalation in wholesale prices...

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Chris Martin

Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes

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Originally posted by @Dawn Brenengen:

American Homes 4. Rent has been in the. Raleigh, NC market for a few years. I'm not sure if they are still actively buying, but they own quite a few homes now.

In Wake county (Raleigh area), AH4R has acquired 47 properties so far this year. We are half way through the quarter and that number is consistent with their buying pattern in the past year. 2014Q4 was 122, 2014Q3 was 84. 2014Q2 was 61. 2014Q1 was 83. As for cities they are in, Raleigh is not in the top 10. From their last quarterly SEC filing, the top ten are(*):

Dallas-Fort Worth, TX
Indianapolis, IN
Greater Chicago area, IL and IN
Atlanta, GA
Cincinnati, OH
Houston, TX
Charlotte, NC
Tampa, FL
Phoenix, AZ
Jacksonville, FL

(*)page 28: http://www.sec.gov/Archives/edgar/data/1562401/000104746914009227/a2222184z10-q.htm
Related:
http://www.biggerpockets.com/forums/311/topics/86191-the-modus-operandi-of-the-mass-buyer---a-case-study
http://www.biggerpockets.com/forums/88/topics/110262-thinking-of-an-investment-in-a-hedge-fund

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Rolanda Eldridge
Investor/Realtor · Hoover, AL · Member since 2010 · 1k+ posts · 459 votes
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They are buying in Birmingham, AL. Of course paying more than I'm willing to pay. It's slowed my progress on my buy and hold model, but I'm focusing and pursuing other options..Opportunities are Unlimited Property LLC...
I sold a couple turnkeys and pursuing a great resell!!!
Considering blogging and crowdfunding...
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Scott Babcock
Seattle, WA · Member since 2015 · 36 posts · 9 votes
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So what happens when the HF decides to get out when the ROI doesn't suit their model? It kind of sounds like HF's are creating their own mini bubbles. Will they get out by flooding the local markets with their properties, potentially driving those markets back down, even if it impacts some of their holdings? Seems like a bad thing to chase but could be profitable to be in front of them.
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Jay HinrichsBusiness Member
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Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@Scott Babcock
even though HF have bought a lot of property in markets I don't think they alone could cause a market to dump....The same metrics are not there as there was during the GFC IE banks being forced to sell assets at all costs... I think these guys if they want to exit will do it in an orderly fashion. Unless there was some sort of out of the ordinary event that caused them to need to sell as fast as possible to shore up cash
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Scott Babcock
Seattle, WA · Member since 2015 · 36 posts · 9 votes
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@Jay Hinrichs Ok, I hear that. Am I reading right that HF's mostly go for retail homes? Is that so they have to do as little as possible to rent them vs REO's that probably need more rehab to get it to market?
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Jay HinrichsBusiness Member
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Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@Scott Babcock
depends on the market.... When I was buying court house steps properties in Atlanta 3 years ago... The hedge funds came in to the auctions.. Using bidding services... and dominated for a long time. and literally drove up the wholesale prices by 50 to 100% in a short amount of time.. And I was at 50 homes I bought at that point.. We stopped buying sat for a few months then packaged them up and sold them to a small fund out of Carmel IN. IN our market here in the Northwest would be very difficult for them to get traction at auctions because they happen every day ( not once a month like many markets) and not that many actually sell 3P.... Along with many sales going judicial now..as opposed to DT.
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Rob Gribben
Bel Air, MD · Member since 2014 · 119 posts · 36 votes
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My concern with following the hedge fund investors is, there may be a bubble created by hedge fund investors. This is all kind of new, and not sure in the long run what it's going to do to RE prices in those areas where hedge funds are the majority owners. What if all of a sudden they want out?
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Robert Reardon
Investor · Sarasota, FL · Member since 2014 · 54 posts · 14 votes
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@David Begley spoke about the SFR securitization market and reminded me of this.
A couple weeks back I was reviewing a bond rating agency's analysis of Progress Residential's recent debt offering. This fund was selling pass-through certificates backed by 4,000 properties that were acquired over the last couple years.
Link below which provides a trove of great info and some cliff notes below.
https://www.krollbondratings.com/show_report/1846?...
Property Count - 4,028
BPO Value - $692.2MM
Top 3 States Represented - FL, GA, AZ
Average Square Footage - 1,978
Average Home Years - 13
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Jay HinrichsBusiness Member
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Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@Rob Gribben
Even though the HF have bought a lot of property statistically they don't own enough in any market to cause a serious problem.. It would be highly unlikely they would list 1000 homes on the same day... I suspect if they do sell them low they will package up and sell to the next set of buy and hold investment companies that come into a market.
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David Begley
Investor · Atlanta, GA · Member since 2014 · 415 posts · 299 votes
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@Robert Reardon @Jay Hinrichs Blackstone bought 1,400 houses in a single day in Atlanta last year and have been amassing Atlanta properties for at least a year. I understand their appetite has been equally as voracious in Chicago and Phoenix. As I mentioned before, I don't think there is as much worry about dumping on the market this time around - the plan will likely be to securitize and sell as securities, IMHO. The market is in its infancy, so issuers won't be able to achieve AAA-ratings, even with healthy credit enhancements, and so aren't yet that liquid. It's just a matter of time.
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Jay HinrichsBusiness Member
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Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@David Begley
in the link posted just above from the bond company there is a link there to Blackstone putting out a 540 million dollar offering do exactly what you describe.
And for that reason I think they need to buy nicer stuff so the rents are more predicatable. as opposed to tougher to manage properties were rents are less predictable.
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David Begley
Investor · Atlanta, GA · Member since 2014 · 415 posts · 299 votes
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@Jay Hinrichs Also, what people don't realize is that these portfolios are eventually highly leveraged by the hedge fund when securitized. A lot of folks think the Hedge funds hoover up these properties as a cash purchase, which is basically true, but as they pool the loans they will get a 1st lien mortgage (singular) secured by a pool of 4,000 to 5,000 homes. The problem then, of course, is trying to hedge these pools - you've got a loan with say a 5-year duration against a pool with an indeterminate duration. There just simply isn't enough data yet to hedge efficiently. Also, rating agencies will require a more diverse geographic distribution of the individual assets. Blackstone now is principally concentrated in Atlanta, Phoenix and Chicago and will need to start diversifying geographically.
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David Begley
Investor · Atlanta, GA · Member since 2014 · 415 posts · 299 votes
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@Jay Hinrichs I meant to include this in my last missive to address your comment about the hedge funds need to buy nicer stuff so the rents are more predictable. This would intuitively make sense, but I'd like to share a contrarian perspective. I don't think Blackstone will be so concerned about the predictability of rent payments as they will be concerned about massive loss in home value. You can bet your bottom dollar that Blackstone's Invitation Homes property management subsidiary will be extremely aggressive and punitive with delinquent renters. The reason Blackstone has been bottom feeding in Atlanta, Phoenix and Chicago is because those real estate markets were among the hardest hit in the last real estate downturn and they can pick up properties in those markets that have hit their bottom. There isn't as much risk in these properties values dropping further as would be the case with rentals in the $150K to $250 range, especially if they become more geographically dispersed. Poor tenants won't be nearly as cataclysmic to the pooled security holders as will the "trigger risk" caused by a valuation downgrade.
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Jay HinrichsBusiness Member
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Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@David Begley
I just have to chuckle I am thinking of my renters in the deep south,, and how when things don't go right they call you 8 times in a row... and they can be pretty clever in finding out who the owner is and such.. I got calls on my cell phone from tenants in the south here in Oregon.. I can see these folks blowing up the corporate HQ.. of Blackstone.. pretty funny visual based on my extensive experience in the C class southern rental and renter.
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Stanley Okazaki
Residential Real Estate Agent · The Woodlands, TX · Member since 2015 · 109 posts · 40 votes
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Houston
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Aaron Ramm
Investor · Marysville, WA · Member since 2014 · 146 posts · 62 votes
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Originally posted by @Jay Hinrichs:

@Aaron Ramm
Well knowing what that part of Washington cost the HF did not get the BP memo on the 2% rule or 1% rule or any other metric that are goals for the BP buy and hold trained investor !!
Looks like they are making their own rules! LOL
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Cal C.
Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes
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Originally posted by @Jay Hinrichs:

@Rob Gribben
Even though the HF have bought a lot of property statistically they don't own enough in any market to cause a serious problem.. It would be highly unlikely they would list 1000 homes on the same day... I suspect if they do sell them low they will package up and sell to the next set of buy and hold investment companies that come into a market.
I'll have to disagree with you on that first part of your statement. This is from Bloomberg last April "While institutional purchases nationwide fell to a 22-month low in January, corporate investors were more active in the Atlanta region, buying 25 percent of homes sold, according to data firm RealtyTrac. That helped drive up Atlanta prices 37 percent since the March 2012 trough."
If in the unlikely event the corporate investors ever decided to pull out en masse then it would have a devastating effect on ATL home prices.
One of the biggest negatives of the corporate investors coming in is the added risk entailed. It is absolutely unlikely that there will be a mass pullout but you have to still factor in the risk, especially if you are flipping in the targeted price range of the corporate investors. Buy and hold investing will also be affected, but there may be some great deals to be had if you have cash available. Again we are discussing unlikely scenarios.
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Cameron Ellis
Investor · Memphis, TN · Member since 2013 · 171 posts · 49 votes
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@David Begley Exactly right! In Memphis, we have a register site where we can see every transaction that is recorded each day. AH4R, Progress, and the other companies have all put 5 Yr Loans on their properties through Goldman Sachs, a coupe 100 million in loans at a time.
Their not going to flush these properties on the market, they know it will never be a demand for home-ownership as it once was.
Blackstone background is selling their assets in pools to Sovereign Wealth Funds, transactions that typically start at 1 Billion..
Honestly these companies don't want to close these transaction one by one only netting around $15,000. But pool 20,000 homes together and sell them all at once profiting $15,000 per house.
These companies now have $300,000,000 Profit sitting on the table.. Big players don't play for small change!
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William Jenkins
Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
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Although it is certainly going to vary by area, here in St. Louis, MO hedge funds have halted their purchases for about the last 6-9 months. I have seen no indication at they are ready to start back up either.
In this market, I do not believe they are getting the returns that they are seeking due to a lack of appreciation. This market is 2 tiered in the areas that they are investing in.
On one hand you have distressed property sales. These were moving quickly and for higher and higher dollar amounts due to the frenzy of investor money (hedge funds included).  This activity is backing off now although there are still mom/pop buyers and some turnkey out of state investors picking them up here and there. Prices seem to be declining steadily but not crashing.
On the other hand you have retail sales. This is the likely exit strategy the funds were looking at for offloading their property for a capital gain. This market barely recovered over the last cycle, and seems to still be stuck in a rut.  The funds are going to have a very difficult time here locally selling their properties this way unless the market changes drastically and soon. I believe this is why they have stopped buying in this area.
They have 2 options at this point here.  1. Hold on to their portfolio and manage it for the long term or 2. sell to local investors at prices likely less than what they paid.
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Jonathan G.
Investor · Marietta, GA · Member since 2015 · 382 posts · 258 votes
10y
I see AH4R putting homes up for rent with increasing frequency in Kennesaw GA. They are decent homes without much luxury. Seems that their footprint is getting bigger around here.
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Robert GilstrapPro Member
Residential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
10y
AHFR killed the rental values in some areas of Atlanta by going low on rents but seems like now they are back in line with market. They don't really impact our business all that much.
[email protected]770-480-7301
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Kim Tucker
Flipper/Rehabber · Kansas City, MO · Member since 2011 · 2k+ posts · 712 votes
9y
We don't as much now, but back a few years ago, every house we bought was then resold for a $10k plus profit to one of 3 hedgefunds buying in the area - all of which stopped buying in Kansas City and now those same funds are trying to sell off their buy and hold - at least they called me over a year ago with packages of 100+ houses in Kansas City.
Of course not sure how their houses could be cash flowing well when they were paying 20 percent or more than what any individual investor spending their own money would spend.
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Justin Stamper
Investor · Orlando, FL · Member since 2012 · 822 posts · 303 votes
8y
I would love to see this thread get going again and see if and where hedge funds are buying at in the USA in 2018 @Jay Hinrichs
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Chad U.
Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
8y
I just a tape of loans last week with over 550 spread out across numerous states. This fund bought between 2009 and 2012 so now looking to unload at 3x or more what they paid.
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Justin Stamper
Investor · Orlando, FL · Member since 2012 · 822 posts · 303 votes
8y
Originally posted by @Chad U.:

I just a tape of loans last week with over 550 spread out across numerous states. This fund bought between 2009 and 2012 so now looking to unload at 3x or more what they paid.
Were they trying to unload them to you? Are they looking to sell the entire tape, or do you think they will end up listing them on MLS?
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Josh C.Pro Member
Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
8y
They are still active in Indianapolis and the suburbs. They just bought a house for $200k as is that rents for $1400/month. Vinyl village cheap build type product. Incredible dumb at that asset class, with those price/rent, in this hot market I think. I did see a big HF Mt. Helix exit or at least exiting and I don’t think very profitability. I bought a great house (appraised for 150k after only 3 months and 30k rehab) for 36k. Market as is value was probably 80k. I bought another house from them for 50k a week after they listed it for 85k. I think they bought it for 20k three years prior so they did ok in that one. Another house we offered 65k and they refused. 2 weeks later they listed it on the MLS for 40k. Just non sense all around.
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