Wall Street is selling more rental homes, as buying ban takes effect

A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and emerging opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. become a member to receive future editions straight to your inbox.

Newly enacted housing legislation that bans institutional investors from purchasing single-family rental homes is causing those same investors to put up more for sale signs.

The number of homes owned by institutional investors and available for sale is more than double this month than at the beginning of February, according to an analysis provided exclusively to Property Play by property data provider Parcl Labs.

Listings have increased from 4,166 on Feb. 1, when Parcl launched its full search, to 9,447 homes with a total asking price of $3.1 billion.

“The rate of change for sale is something to pay attention to,” said Jason Lewris, co-founder of Parcl Labs. “Given how long the sales cycle can be, these numbers won’t translate into real savings for months, but it’s the quickest read into corporate behavior.”

The legislation defined institutional investors as those who owned 350 or more homes. This was a surprise for the industry, which has traditionally set the bar at 1,000 households. This doesn’t force them to sell the homes they currently own, but they are barred from buying more homes unless they fall under certain exemptions, including build-to-rent.

Lawmakers’ accusation was that these investors, many of whom could buy homes with cash, were inflating prices and crowding out regular homebuyers. The call for a ban was bipartisan.

Large-scale investors first entered the market during the financial crisis in 2008; Foreclosures were rampant during this period, and mass auctions were popping up in hard-hit markets like Atlanta, Las Vegas, and Phoenix. Private equity firms quickly purchased thousands of homes and converted them into rentals, creating a new single-family rental asset class.

The group, which consists of investors who own 350 or more homes and thus fall under the new law, now owns about 589,000 homes, or 3.9% of the 14 million rental single-family homes in the U.S., according to Parcl. They account for approximately 40% of net sales year-to-date.

The largest homeowners – Progress Housing, Invitation Houses, AMHTricon, FirstKey, Amherst and VineBrook are net sellers year-to-date, selling 3,180 more homes than purchased since Jan. 1. To put that in perspective, they still own about 400,000 homes, so this isn’t exactly a liquidation sale, with one exception. VineBrook currently has about 10% of its portfolio in the market; approximately 1,900 homes and a total asking price of $285 million.

Invitational homes and AMH, which are publicly traded, single-family rental REITs, have 549 and 536 homes for sale, respectively. The largest landlord, Progress Residential, has the least among the major players; only 143 of them are for sale.

“There is now a broad recognition, overwhelmingly by both the White House and lawmakers, that private equity has a very large role to play for a portion of the American population that wants to rent a home,” Pretium co-chairman Stephen Scherr said in an interview last week on CNBC’s “Squawk on the Street.” Pretium is the parent company of Progress Residential.

Progress is now focused on areas that the new legislation allows and that the industry has fought hard for throughout the legislative process.

“We can buy build-to-rent, which is a dominant component of new housing. We can buy under a range of rent-to-rent exceptions, where we buy as part of homeownership support where we improve the housing stock or give people the opportunity to transition from tenant to homeowner where they want,” Sherr said.

The build-to-rent game has been gaining significant momentum over the past few years as demand for single-family rental housing has increased.

AMH began building their home in early 2017. More than 14,000 rental homes have been built so far in 180 communities, according to the company. Invitation Homes acquired Atlanta-based home builder ResiBuilt earlier this year.

“With the removal of compulsory savings, the financial situation has changed significantly. Lenders can take on this situation [build-to-rent] “We’re starting to see it happen again,” Chris Nebenzahl, vice president of leasing research at John Burns Research and Consulting, wrote in a report.

Selling investors offer discounts on properties. According to Parcl Labs, 38.7% of all listings for sale nationally today have price reductions, compared to 54% in the corporate, single-family rental group. Since the beginning of May, discounts have deepened from approximately 3.1% to 4% of the value of demand. Meanwhile, 54% of investor listings in more than 350 housing categories have price reductions.

“Given the state of U.S. home prices, as far as we can tell, some of this is attributed to shifts in strategy — collecting high dollar values ​​from the best home values ​​in the U.S. by weeding out underperforming assets and directing that capital to growth areas, such as construction-rental,” Lewris said in a statement. he said, adding that the next six to eight weeks will be decisive.