Where Wall Street is Most Likely to Cash out of the Single Family Rental Market

After nearly three years and hundreds of thousands of property purchases, the nascent single family rental industry is at a crossroads in terms of future growth and long-term staying power. Many are wondering how many of the players will “cash out” of their property portfolios given the strong home price appreciation over the past few years — and if so how that liquidation would impact local markets with a high density of single family homes purchased as rentals.

RealtyTrac data shows very few of the large institutional investors involved in the single family rental market are selling off in large quantities, but home price appreciation has given those investors a good opportunity — and motivation — to sell and realize a solid return on many of their properties in many markets.

We analyzed more than 200,000 purchases made by institutional investors (10 or more purchases during a calendar year) from January 2012 through August 2014, evaluating the potential return investors could realize by selling these properties now.

On average those 200,000 properties were purchased for $167,556 and have a current estimated value of $211,897, a potential gained equity return of 26 percent or $8.9 billion if all of those properties were sold.

Where Single Family Rentals Have Gained Most Equity

Top four single family investors have gained 23 percent in equity
Four of the largest investors involved in the single family rental market have a potential of $1.2 billion in gained equity, or a 23 percent return, on properties purchased in the last three years (and that is just among the subset of properties with sufficient sales price and valuation information available).

Among the largest institutional investors involved in the single family rental market, Blackstone/Invitation Homes had the most purchases with price and value information available over the past three years with 14,108, followed by American Homes 4 Rent (12,811), Colony American Homes (4,935) and Fundamental REO/Progress Residential (3,208).

When broken down by MSA (filtering out MSAs with at least 100 purchases by a single investor), the highest potential percentage return on gained equity were for properties purchased by American Homes 4 Rent in Chicago (43 percent), properties purchased by Colony American Homes in Palm Bay-Melbourne-Titusville, Fla. (42 percent), and in Orlando (36 percent), and properties purchased by American Homes 4 Rent in Columbus, Ohio (36 percent), Indianapolis (35 percent), and Atlanta (34 percent).

Properties purchased by Colony American Homes over the past three years have the highest percentage return on gained equity among these top five buyers, with 28 percent, followed by Blackstone/Invitation Homes at 23 percent, American Homes 4 Rent at 23 percent and Fundamental REO/Progress Residential at 13 percent.

Properties purchased by Blackstone/Invitation Homes over the past three years have the most potential dollar value in gained equity, $523 million, followed by American Homes 4 Rent ($409 million), Colony American Homes ($198 million) and Fundamental REO/Progress Residential ($67 million).

When broken down by further by year of purchase, the highest potential percentage return on gained equity were for properties purchased in 2012 by Colony American Homes (42 percent), properties purchased in 2012 by Fundamental REO/Progress Residential (38 percent), properties purchased in 2012 by American Homes 4 Rent (32 percent), and properties purchased in 2012 by Blackstone/Invitation Homes (31 percent).

Local broker insights
“With the pop in prices last year and normal historical price increases this year, investors are testing the market with their inventory.”
-Mike Pappas, CEO and president of Keyes Company, covering the South Florida market.

“During 2014, Ohio has been the benefactor of interest for many large intuitional investors. An increasing job market, coupled with modest previous month-over-month price increases, has provided a positive return for institutional investors taking advantage of a high demand rental and sales market. While we have noted some limited sales activities with institutional investors looking to take advantage of increased equity due to the rising prices of inventory, many appear to be continuing to hold on to assets in receipt of growing rental returns, and the forecast of continued growth in equity over the next two to three years.”
-Michael Mahon, executive vice president and broker at HER Realtors, covering the Columbus, Cincinnati and Dayton, Ohio markets.

“We are starting to see institutional investors release their hold-and-rent inventory back into the market as prices reach near peak prices.”
-Chris Pollinger, senior vice president at First Team Real Estate, covering the Southern California market.

Biggest potential equity returns in Delaware, California, Oregon, New York, Colorado
States with the most institutional investor purchases with price and value information available over the past three years were Florida, Georgia, California, Texas, North Carolina, Arizona and Illinois — all with more than 10,000.

States with the highest percentage of gained equity returns on institutional investor purchases were Delaware (63 percent), California (47 percent), New Hampshire (44 percent), Oregon (42 percent), New York (39 percent), and Colorado (38 percent).

States with the most potential dollar value in gained equity on institutional investor purchases over the past three years were California ($1.9 billion), Florida ($1.4 billion), Georgia ($662 million), Arizona ($546 million), Illinois ($486 million), and North Carolina ($442 million).

Metros with biggest equity returns include San Francisco, Portland, San Diego, Los Angeles
Metro areas with the most institutional investor purchases with price and value information available over the past three years were Atlanta, Miami, Phoenix, Chicago, Charlotte, Las Vegas, Tampa and Dallas — all with more than 5,000.

Metro areas with at least 1,000 institutional investor purchases over the past three years with the highest percentage of potential returns on gained equity were San Francisco (63 percent), Portland (50 percent), San Diego (47 percent), Los Angeles (46 percent), and Riverside-San Bernardino in inland Southern California (46 percent).

Metro areas with the most potential dollar value in gained equity on institutional investor purchases over the past three years were Miami ($611 million), Atlanta ($609 million), Los Angeles ($568 million), Phoenix ($512 million), and Chicago ($464 million).

Homes purchased in 2012 have highest equity return
Institutional investors have the most motivation in terms of potential returns from gained equity on homes purchased in 2012, with potential returns ranging from 38 to 43 percent depending on the month purchased.

Months with the most institutional investor purchases with price and value information available over the past three years were July 2013, May 2013, June 2013, August 2013 and April 2013 — all with more than 10,000.

Institutional investor purchases representing the highest percentage return on gained equity were purchased in June 2012 (43 percent), March 2012 (42 percent), April 2012 (40 percent), January 2012 (39 percent), September 2012 (38 percent), and August 2012 (38 percent).

Four of the largest investors involved in the single family rental market have a potential of $1.2 billion in gained equity, or a 23 percent return, on properties purchased in the last three years (and that is just among the subset of properties with sufficient sales price and valuation information available).

Markets where these big four investors have the most motivation to “cash out” based on potential returns from gained equity include Chicago, Palm Bay-Melbourne-Titusville, Fla., Orlando, Columbus, Ohio, Indianapolis, Atlanta, Jacksonville, Fla., and Charlotte.

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