Wall Street is selling more rental homes, as the purchase ban goes into effect

A version of this article first appeared in the CNBC Property Play newsletter with Diana Olek. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. subscription To receive future issues, directly to your inbox.

Recently enacted housing legislation, which prohibits institutional investors from purchasing single-family rental homes, has prompted the same investors to put up more “for sale” signs.

The number of homes owned by institutional investors listed for sale, as of this month, is more than double what it was at the beginning of February, according to analysis provided exclusively to Property Play by Parcl Labs, a real estate data provider.

Listings have risen from 4,166 on February 1, when Parcl launched its full search, to 9,447 homes now representing $3.1 billion in total asking price.

“The rate of change on sale is something to watch,” said Jason Leoris, co-founder of Parcl Labs. “These numbers won’t materialize in actual actions for several months given how long the sales cycle can take, but they are the quickest read into corporate behavior.”

The legislation defined institutional investors as those who own 350 or more homes. This came as a surprise to the industry, which had traditionally set that limit at 1,000 homes. It does not force them to sell the homes they currently own, but they are prohibited from buying any more unless they fall under certain exceptions, including build-to-rent.

The lawmakers’ charge was that these investors, most of whom were able to buy homes with all cash, were inflating prices and marginalizing regular owner-occupied buyers. The call for the ban was bipartisan.

Large-scale investors first entered the market during the financial crisis in 2008, when foreclosures were rampant and bulk auctions emerged in the hardest-hit markets, such as Atlanta, Las Vegas and Phoenix. Private equity firms bought thousands of homes in a short period, converted them into rentals and created a new single-family rental asset class.

The group of investors with 350 or more homes that falls under the new legislation now owns nearly 589,000 homes, or 3.9% of the 14 million single-family rental homes in the U.S., according to Parcl. It represents approximately 40% of net sales year to date.

Biggest Landlord – Housing Progress, Da’wah houses, AMHTricon, FirstKey, Amherst and VineBrook – all are net sellers year-to-date, with 3,180 more homes sold than purchased since January 1. To put that into perspective, they still own about 400,000 homes, so it’s not exactly a liquidation sale, with one exception. VineBrook currently has approximately 10% of its portfolio on the market, roughly 1,900 homes with a total price tag of $285 million.

Advocacy Homes and AMH, the two publicly traded single-family rental REITs, have 549 and 536 homes for sale, respectively. The largest landlord, Progress Residential, has the fewest major players, with just 143 for sale.

“There is widespread recognition now by both the White House and lawmakers, overwhelmingly, that private capital has a very large role to play for the portion of the American population that wants to rent a home,” Stephen Scheer, co-president of Pretium, 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 permitted by the new legislation and for which the industry fought hard during the legislative process.

“We can buy build-to-rent, which is a prevalent element of new housing. We can buy under various other exceptions including rent-to-renovate, where we improve the housing stock or buy under the promotion of homeownership, where we give people the opportunity to move where they want from renters to owners,” Scheer said.

The build-to-rent game has picked up steam over the past few years as demand for single-family rental housing increases.

In early 2017, AMH began building its own homes. To date, it has developed more than 14,000 rental homes in 180 communities, according to the company. Invitation Homes purchased an Atlanta homebuilder, ResiBuilt, at the beginning of this year.

“The financing situation has changed fundamentally with the removal of the forced disposition mandate. Lenders can underwrite [build-to-rent] Once again, we are starting to see this happening,” Chris Nebenzal, vice president of rental research at research and consulting firm John Burns, wrote in a report.

Investors who sell offer discounts on real estate. Nationally, 38.7% of all listings for sale today saw price reductions compared to 54% within the institutional single-family rental pool, according to Parcl Labs. Since early May, write-offs have deepened from about 3.1% to 4% of the requested value. Meanwhile, 54% of investor listings for that category of 350+ homes carry a price reduction.

“From what we can tell, looking at US home prices, some of this is attributable to shifts in strategy – collecting higher dollar values ​​from the highest US home values ​​by disposing of underperforming assets and redirecting capital towards growth areas, i.e. build-to-rent, for example,” Leoris said in a statement, adding that the next six to eight weeks will be significant.