America’s New Landlords

GWINNETT COUNTY, GEORGIA (Real Money) -- It’s a new phenomenon sweeping across the nation: big institutional investors buying up foreclosed homes by the hundreds – even thousands – in distressed communities.

Even though the housing market is improving, a new Morgan Stanley report says homeowners who have defaulted on their mortgage will likely have no choice but to rent, and that will result in “moving the country towards a rentership society.”

And that’s one of the big reasons why large investors are buying up so many houses so quickly.

“Looking back a year and a half ago, not one institution owned more than 1,000 single family rental homes,” says David Bragg, Managing Director at Green Street Advisors. “However, today the top six players combined own 80,000 single family rental homes.”

And Morgan Stanley predicts that number will grow in the coming years. It says the now $17 billion market will balloon to $100 billion. 

“Hedgefunds across the country are realizing that our market is going from what they refer to as an owner nation, to a renter nation…so the rental market is huge,” says Sheree Villar, a local realtor with ERA Atlantic Realty in Gwinnett County, Georgia. She buys homes for two large institutional investors every month at the foreclosure auction from the steps of the Gwinnett County courthouse. “What they’re doing is buying these homes in blocks to turn around, put on the rental market, and resell when the market really is strong.“

The biggest institutional investor on the scene right now is Blackstone, which purchases residential houses under the name “Invitation Homes.” The other top two investors in the U.S. right now are American Homes 4 Rent and Colony American Homes.

Many big investors are pooling some of these homes into Real Estate Investment Trusts - or REITS. These are popular vehicles for real estate and trade on the stock exchange. Investors may be counting on big returns, but local realtors say it’s changing the housing market in Gwinnett County.

“In one month we advertised 1089 foreclosures, which is equal to the active listings in the market,” says Gwinnett county real estate broker David Hunt. “Hedgefunds are taking those off the market. They’re not available for anybody to buy. So we’re coming up with a shortage of housing.

Source: Realty Trac

Realty Trac reports that institutional investor purchases account for 23% of all residential sales in Georgia – the highest in the country. In the Atlanta metro area, more than a quarter of all residential home purchases in June were made by institutional investors.

Local realtor Greg Martin says a home in Gwinnett County could get 5 or 6 different bids because inventory is so low. “Gwinnett County has 2100 active homes for sale. That’s about one-third of the inventory we had in 2008. Not down one-third. I’m saying we have one-third the homes to sell today than before the market downturn,” says Martin.

But analysts say that’s a good thing – for now. “I think the overall low inventory has been a good thing because it put a floor under home prices,” says Jody Kahn, Sr. Vice President for John Burns Real Estate Consulting. “We’ve stopped seeing prices fall month over month. One would argue that’s a good thing and we think so too.”

But locals in Gwinnett County are worried about how long institutional investors will hold onto the properties – and if they’ll flood the market with homes for sale if they lose interest in the rental business. Kahn says the institutional investors she’s spoken with say they are planning for a long-term hold with these properties. “The investors themselves would suffer if they sell too many homes or release too many homes at once,” she said.

Blackstone, which declined to comment for this story, says in one of its investor videos that the company is committed to spending roughly 10% of the purchase price to renovate homes in communities with high foreclosure rates. In the video, Jon Gray, head of global real estate for Blackstone says, “We’re hiring thousands of people across the country to do that. We think it’s the right thing not only for our investors, but the country at large.”

(Original package aired Friday, August 23rd. If your cable provider doesn't offer Al Jazeera America, you can request here.)