Wall Street landlords are back in action.
Institutional investors bought more single-family rental homes in 2017 than in previous years, the first increase since 2013, according to data compiled by Amherst Holdings LLC.
Wall Street firms such as Blackstone Group LP and Tom Barrack’s Colony Capital Inc. rushed into the single-family rental business when U.S. housing markets were reeling from the foreclosure crisis and homes were available and cheap. The feeding frenzy was short-lived. By 2014, big landlords were already paring back their purchases as foreclosures dried up and they tackled the challenge of managing widespread homes.
Now they’re buying again, at a time when single-family landlords are raising rents faster than apartment owners. While multifamily landlords face pricing pressure from new supply, very few single-family homes are built specifically for leasing.
Demand for rental houses “feels like it’s insatiable,” Gary Berman, chief executive officer of Tricon Capital Group Inc., said in an interview.
Tricon, the third-largest publicly traded owner of U.S. rental houses behind Invitation Homes Inc. and American Homes 4 Rent, bought about 850 homes last year, said Amherst, which analyzed data from CoreLogic Inc. The biggest purchaser was Cerberus Capital Management, with an estimated 5,100 houses. Amherst itself bought almost 4,900 homes through its Main Street Renewal subsidiary.
There’s another factor driving Wall Street’s renewed acquisitiveness. Now with their businesses well-established, the large landlords are having an easier time financing purchases, said Greg Rand, CEO of OwnAmerica, an online platform for buying and selling rental houses. The combination of cheaper credit and more efficient operations has made investors comfortable paying higher prices for properties.
“If your cost of capital is lower and the asset class has been proven, you don’t need to buy at a big discount,” Rand said.