Tracking the Big Dogs: How Hedge Funds are Changing Major Real Estate Markets


Last year was the first in which major institutional investors (hedge funds) operated on a large enough to change major real estate markets.  While there’s been much debate, conjecture and anecdotal reporting as to the size and nature of their activities, for the first time a leading real estate economist has tracked their impact during the year, including their migration from traditional to newer foreclosure markets.

The March issue of “The Market Pulse,” CoreLogic’s monthly newsletter, contains a remarkable analysis by CoreLogic Deputy Chief Economist Sam Khater, who found the impact of hedge funds’ purchasing activities to be significant and in many ways surprising.  Certainly the big dogs in town have changed forever residential real estate investing in the markets where they have been a major presence.

To measure the size of hedge fund purchases, Khater focuses on the dramatic decline in REO inventories, a significant sign of investor activity, and looks at the impact in the top five markets where they have declined the most:  Las Vegas, Oakland, Phoenix, Riverside and Sacramento.  Beginning in January 2012, REOs collapsed and the price volatility disappeared, suggesting a very large shift in these markets that overwhelmed normal volatility.

Related: Hedge Funds are Fueling Foreclosure Inflation in Hot Markets

Though the scale of institutional purchases compared to the size of foreclosure markets was small, their impact was magnified because they were concentrated in a few selected markets.  To measure the actual size of hedge fund purchases, Khater came up with clever way to weed out purchases by individual investors from the total investor market share.  He defined any investor using first-lien financing as an individual investor and subtracted them from the total.  Among the rest, he defined any investor making five or more purchases a year under the same name or incorporated entities making purchases as institutional investors.

This allowed him to look at markets with rapidly rising institutional investor activity in a systematic way.  The top candidates include Atlanta, Detroit, Las Vegas, Phoenix, Los Angeles, Riverside and Sacramento.  Hedge fund activity increased by 50 percent in these markets last year.

Markets with flat or lower recent increase in hedge fund activity are Charlotte, Chicago, Minneapolis, Oakland, San Diego, Miami, Orlando, Tampa and Warren, MI.  In these markets, institutional investors increased their market share by 15 percent or less last year.

Three markets stood above all the rest because they experienced a significant increase in hedge fund activity during the year and had a high market share of institutional investors.  These are Atlanta, Las Vegas and Phoenix—also the markets with the largest percentage declines in REOs last year.

Related: Hedge Funds Go the REIT Way

Institutional investors are now concentrated in five states: Florida, Georgia, Arizona, Nevada and North Carolina.  Their impact in leading markets is dramatic.  In Miami they accounted for 30 percent of all property sales in 2012, the highest of any market in the study.  Next were Phoenix (23 percent of all sales),
Charlotte (21 percent of all sales), Las Vegas (19 percent of all sales) and Orlando (18 percent of all sales).

Hedge fund purchases have had significant impacts on the local real estate markets where they have been active.  Home prices in all six top hedge funds markets experienced double digit median home price increases last year.  They have driven up REO prices for individual investors and owner-occupant buyers.  Ripple effects from the drought of REOs in those markets have driven lower-tier home prices up increased 15 percent over a year ago, compared to only 6 percent in other markets with a lesser hedge fund presence.




Photos: Hoboken Condos,

About Author

Steve Cook is the editor of Real Estate Economy Watch and writes for a several leading outlets in addition to BiggerPockets, including Equifax and Total Mortgage. He also provides communications consulting services to leading real estate companies. Previously he was vice president of public affairs for the National Association of Realtors.


  1. I wrote an article on this as well on how investors should be encouraged by the hedge funds. The hedge funds are way to big to get the deals an individual investor can. We can also manage, repair and rent our properties cheaper than they can. They still think Real Estate is a great investment. Individual investors can still get good deals if they know how to find them.

  2. In the NEW Normal,investors have to be creative. All business have to be creative. Hedge funds found a way to be creative. There is still a lot of opportunity for individual investor’s. Hedge funds are looking for 6% on their money. Which is double the 3% they were netting with bonds. We all must get used to the new normal. 6% on our money. Be happy we are not at 3%

  3. Last week I found a property that looked good in Hemet, CA. I called a property management company in Hemet to get an idea of the rental market and current prices to confirm it was a good buy. The PM said they have a glut of single family rentals and rents are really low with tons of vacancies because of the hedge funds bought so much and turning them into rentals. After that conversation, the property didn’t look nearly as good.

Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here