You may be concerned, I'm not so much, probably a future micro bubble waiting to happen, but if you borrower from them, so long as you pay as agreed, you'd be fine. Can you shed more light on it? :)
@Patrick C. , saw the plan a while back, and not surprising they are going to float debt backed by the collateral.. With money so cheap and the collateral viewed as sound with the upswing in real estate, they'd almost be foolish not to! I believe some of the SFH residential pools have already been spun off into REIT's, but I wouldn't be surprised to see that more often in the future. For now, they are just layering the leverage. They borrow for internal purposes, supporting overall equity contributions, they borrow directly against their collateral, they borrow and lend securities under custodianship.. That's what pushes the ROE up when the underlying collateral is standing still!
Not endorsing or commenting on "morally" whether or not big investment firms and P/E treat tenants right, but the same happens with individual landlords sometimes. These firms will almost certainly receive more attention though if they have landlording issues, which have already popped up.. @Bill Gulley I guess they are the enemy of investors because they are buying our inventory?.. and stealing our investors?..
Well, if I were appointed as King, many things would be different, there wouldn't be commercial banks in investment banking, security and banking laws would drop back to prior the Clinton years and securitizing anything that existed on the face of the earth wouldn't necessarily be allowed, such as SFDs. It's almost as if this was all orchestrated to intentionally cause the bubble and come in the back door cleaning up the mess to repeat the process churning profits.
I don't know if securitized portfolios of SFDs will fly, Warren Buffet seems to think so I believe, he has a pretty good crystal ball in manipulating or seeing the interactions between market industries. These portfolios won't last forever as idle assets, they will likely be held, depreciated and sold off moving the inventory for other acquisitions, at least a possibility. The other issue is at the micro level managing properties, how likely is it that costs will be higher? I don't see anyone moving from NY to manage 20 homes in my town which must mean local PMs will step in. What will that relationship be like, who gets called to fix the toilet? The corporate office will probably have a very busy fraud and compliance office.
I agree, corporate landlords will be a news worthy story, I've known of individual landlords that were just crooks and never mentioned except at cocktail parties. :)
1) This confirms that rental real estate is one of the best channels for making money. The best minds in private equity have figured this out and are going all in.
2) It will be very tough to compete against their business models and capitalization. They will have the best resources especially in the areas of valuation, accounting, contracting, property management, purchasing and selling. The article shows who they are and how they operate locally.
I was contacted by one of these companies regarding doing hvac repairs for them. It seems like a very good source of business for me. They have a lot of properties in this area. I talked to a guy that has been doing work for them that referred them to me and he likes them. I do initial inspections when they purchase and do maintenance afterwards. They showed me their pay structure for repairs and it's very competitive. They pay almost as much as if I were dealing with the public. Better than most PM companies.
1) This confirms that rental real estate is one of the best channels for making money. The best minds in private equity have figured this out and are going all in.
I see several problems with that statement:
1. This would only indicate that rental real estate *was* a great way to make money at the time private equity was buying. As far as I can tell, their buying has slowed considerably the past several months.
2. This would assume that offering a collateralized debt product was their Plan A. Personally, I'm not convinced that what Blackstone is currently doing (and no doubt others are planning) was actually a Plan B or Plan C.
3. Private equity has been wrong before. Remember just before the tech bubble burst when private equity was buying into tech IPOs?
1) This confirms that rental real estate is one of the best channels for making money. The best minds in private equity have figured this out and are going all in.
2) It will be very tough to compete against their business models and capitalization. They will have the best resources especially in the areas of valuation, accounting, contracting, property management, purchasing and selling. The article shows who they are and how they operate locally.
Patrick,
Here "was" my take on the situation earlier in the year when I heard hedge funds and private equities buying foreclosures.
The hedge funds and private equities are gambling with OPM. They buy houses at a 7% CAP minimum, paying $100k for a projected net of $7,000 annual cash-flow. They hold the asset for 2 years before convert it to a REIT and sell shares to the public at a 5% CAP rate raising $140k ($7,000/0.05). That's $40k return in addition to $14,000 in cash-flow over 2 years. That's $54k return on a $100k investment. 54% return in 2 years. Imagine if they can get a 10% cap rate and leverage it at the same time. I wouldn't be surprised that these big boys can borrow money at 1% - 3%. Once you factored in their leverage, the return is way north of 100%.
After they converted it to a REIT and sold it to the stock investors. It's someone else's problem. They made their money. Let the property management companies and the stock investors worry about the maintenance, etc. It's just a number's game for them.
Now, I don't really care what they do anymore. They didn't enter my market because the numbers didn't work for them. Whenever they exit their rental markets if at all, those areas might experience price pressure in my opinion. These guys only care about making money and have no issue let someone else holding the bag. I learned this from the 2008-2009 mortgage meltdown. They got our politicians in their pocket. Sorry for not thinking highly of these individuals and our politicians.