Private Equity Funds Who Purchased in 09-14 ready to release home

2 Replies

Watching the markets very carefully these days esp California SF Bay Area market........ 

Has anybody researched when all these private equity companies will be free to release the homes they purchased from 2009 to 2015? Majority of the PE's that purchased large tapes had clauses that required them not to release the assets purchased for resale. I believe the time frame was 3-5 years. We've also spoke to a RE PE fund here in SF California which mentioned they were not profitable on the rental side of the business and are very excited to start selling 1000 homes they purchased in the entire state of California. Would like to hear your guys input or insight around this topic. We're at all time highs and have passed 2006 prices! I get everyone saying this market is different because people have CASH but majority of the down payments of single handed investors or regular buyers are using STOCK money to use towards their down payments. 1st If the stock market has a correction 2nd if the PE's start releasing inventory to flood the markets and if the feds increase the interest rate (Which they will) We're certain there will be a 10% to 15% decline. For those of us who're in the rental business might be safe as you're more so on the CASH FLOW game but those of us who're building new construction and doing fix N flips have to VERY CAREFUL. Give us your insight BP!!

The question to ask is if these hedge funds have organized as a REIT. If they have, there are limits on what and how they can sell. The other question to ask is if the specific EP funds organized as REITs are securitizing their debt and making (debt) available via public offerings or private placements. The REITs leveraging their SFR portfolios are unlikely to liquidate in short time frames. I don't see funds flooding the market in the near future, but am open to change my opinion if you can provide documents (e.g. SEC or private placements) to the contrary.

Most of the properties purchased by PE funds were acquired at the trustees sales and there are no restrictions on the resale.  A few were bought from FNMA at a bulk sale auction and those properties did have a minimum hold of a few years (although there was language allowing them to sell off a percentage of them earlier). 

That said, some of these firms have placed securitized debt on the property to leverage their equity. Those loans typically contain a yield maintenance requirement that would make it really costly to sell before the yield maintenance times out (unless there is a spike in interest rates).

I think that any notion that liquidation of SFRs by the PE firms will result in a drop in home prices is overblown.  Just look at the number of homes that have been built in a typical year prior to 2007 going back decades and compare those housing starts to what you see today. The addition of the PE inventory into the for-sale marketplace wouldn't even be a drop in the bucket in bridging the gap between housing demand and the shortage of supply in a climate where builders aren't adding to the inventory in substantial numbers.

If you are wondering when funds will start selling in the Bay Area, I can relate some first-hand experience...l've started selling mine.  Don't won't feel the impact.  :)

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