Atlanta Ground Zero for Institutional Investors

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Below is an excerpt from an article in today's WSJ.  I knew that institutional investors were major players in Atlanta, but I had no idea that they were bigger here than anywhere else.  That says a lot of good things about Atlanta RE, only problem is finding properties before the "quants" working for the big investors find them.

Competition for conventional real-estate listings is particularly fierce in Atlanta, where the six largest institutional buyers own more homes than in any other market, according to RentRange.

Oakland, Calif.-based Starwood Waypoint, one of the six, said it has cut the time it takes to calculate a first bid on a house to eight minutes. “We encourage our guys to make an offer before they see the house,” said Ali Nazar, Starwood Waypoint’s chief experience officer. “I don’t want to wait for anyone else. Our competitors are also fast.”

One local Atlanta real-estate agent said bulk purchasers are making it more difficult for individual home buyers to compete for new listings. Home prices in Atlanta have jumped 22.5% in two years, according to the S&P/Case-Shiller Home Price Index’s data through January.

“They’re outbidding all of us,” said Brian O’Neal, a Realtor based in McDonough, Ga., a southeastern suburb of Atlanta.

Operating from the firm’s largest branch office at a former meatpacking plant in Atlanta, Starwood Waypoint’s acquisitions team evaluates potential purchases with a data map that ranks the “livability” of local neighborhoods according to information provided by local employees of the firm who frequently visit the area. Factors include proximity to retailers and how noisy the neighborhood is.

Employees ultimately weigh about 15 variables when calculating a bid price, the monthly rent and renovation costs. Employee bonuses are based on the accuracy of their home bids and rental estimates.

After submitting a bid, Starwood Waypoint employees visit the home with iPads and take it through a 45-minute inspection, marking what renovations need to be made. The results—labeled “satisfactory” or “unsatisfactory”—get shared on the company’s internal network and are used to keep tabs on all of the roughly 2,700 homes Starwood Waypoint owns in the Atlanta area.

On a recent visit to a suburban Atlanta home that Starwood Waypoint owns, David Zanaty, a senior vice president, walked into a four-bedroom home available to rent and glanced at his smartphone. “Our guy was here just yesterday,” said Mr. Zanaty. “And there aren’t any unsatisfactory notes.”

Mr. Zanaty inspected whether, as instructed, the thermostat was left at 67 degrees; it was. He opened the dishwasher to verify it had been run recently. He examined the second-floor bathroom, where silver faucets were offset by walls painted in a “toasted almond” color, a pairing seen in many Starwood Waypoint homes because the firm purchases those items in bulk.

On the one hand I suppose this says something good about the Atlanta RE market, however how is this a good thing for the little investor? It seems as though Atlanta will be ground zero for one of the largest David v/s Goliath battle this side of the Mason Dixon. Also, has anyone noticed that many of these bulk buyer groups are outside of the state, region, and even the country?

btw, good excerpt read.

So you wonder if these guys are artificially pushing the market up and later if they decide maybe they paid too much if there will be a rebalance of values. Or they just dump it off as as an overvalued fund on wall street and stick it to the buyers of the fund. Just like the toxic loans that were dumped on wallstreet and caused havoc on the economy and the higher execs walked unscathed with lots of money.

It means you have to work a lot harder to find deals.  You have to find a niche that the institutional investors don't want to touch.  Wholesale deals, low-income housing, multi-family including duplexes, triplexes and quads.  

Originally posted by @Kevin Auyong :

So you wonder if these guys are artificially pushing the market up and later if they decide maybe they paid too much if there will be a rebalance of values. Or they just dump it off as as an overvalued fund on wall street and stick it to the buyers of the fund. Just like the toxic loans that were dumped on wallstreet and caused havoc on the economy and the higher execs walked unscathed with lots of money.

 I've wondered the same things a bunch of times. In fact, I was licking my chops waiting for these guys/gals to inevitably fail.  However, they seem at least for now to be moving towards making these long term holds and you don't hear of any major risk issues.  Unlike the MBS which failed based on the fact that many shi(f)ty loans were mixed in, the preponderance of what they seem to be investing in are ones that seem like solid investments.   Obviously, things would look differently if we have a major recession where tenants suddenly disappear and you can't rent anything even for 2/3 of what you were getting before like in 2008/9.  

Yea, you'd have to find things that won't come across their radar. I would imagine the word is out, sell to a hedge fund and get top dollar . . . or more!

I think it depends on how well the assets are managed. I remember Blackstone sent out over 15% of their assets in Charlotte eviction notices. Tenants complained Blackstone was non responsive. makes you wonder how they run their units

 same thing with Invitation Homes. If you google their name and reviews you go a whole host of complaints. There is one around the corner from one of my properties and they go in a do the bare minimal and usually get "c" tenants.

Medium hauszwei logo smallKevin Polite, HausZwei Homes | http://www.HausZweiHomes.com

Originally posted by @Cal C. :

 I've wondered the same things a bunch of times. In fact, I was licking my chops waiting for these guys/gals to inevitably fail.  However, they seem at least for now to be moving towards making these long term holds and you don't hear of any major risk issues.  Unlike the MBS which failed based on the fact that many shi(f)ty loans were mixed in, the preponderance of what they seem to be investing in are ones that seem like solid investments.   Obviously, things would look differently if we have a major recession where tenants suddenly disappear and you can't rent anything even for 2/3 of what you were getting before like in 2008/9.  

We unloaded an under-performing rental property in the summer of 2014 to one of these hedge funds.  They paid us about 97% of market value.  We were routinely renting it out for about $1,250 per month.  They have it advertised for $1,800 per month and it has sat empty for the whole time that they have owned it.  I don't understand the way that they run numbers....

I think there will be tremendous buying opportunities when the institutional investors aren't able to give their investors the returns promised. I think they made their money when they bought but management, vacancies and overhead will be their down fall. SFH's are not apartments. They are localized and need more hand holding as evidenced with the numerous posts here on BP.

Interesting follow up to this post is that Blackstone is selling 1300 homes, though that is just a small portion of what they own here, and looks like they are probably just pruning off the bad ones. Would love to find out where the homes are located that they are selling.

http://www.bloomberg.com/news/articles/2015-07-13/...

I've seen many of their homes which are rented under the Invitation Homes banner. With the prices they've paid and the rent they're receiving, at least in the areas I've seen, they are definitely cash flowing. However, there have been tons of complaints about the quality of the rentals.  

Medium hauszwei logo smallKevin Polite, HausZwei Homes | http://www.HausZweiHomes.com

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