Where The Hedge Funds Are Buying

Question

I've been working in insto finance for a few years spent a few hours having a dig around for any public information instituation buying of SFR as I'm personally invested in the Atlanta market just recently.

Came across multiple reports this one I found was interesting: http://investors.silverbayrealtytrustcorp.com/Cache/1500047694.PDF?Y=&O=PDF&D=&FID=1500047694&T=&IID=4335231

Silver Bay Realty is a the first fund who have public listed (there's been an IPO listing for American Residential Homes just recently so they are looking to cash out as well).  They are really trying to list SFR as a new asset class that is publicly tradable.

Some interesting points in the report.

- Phoenix and Vegas seem to be the markets where they are struggling to rent comparatively.
- The budget 15% for renovations
- I remember reading somewhere they estimate 40% in expenses (vs the 50% rule inthis forum)
- Their average age of properties 14 years.

I know a lot of people on this forum says that property as run up really fast really quickly.  It has.  But looking at the data from a few hours analysis it looks like there is still a lot of capital to be deployed.  I know from experience it takes time to raise capital, execute etc. and there are a lot of players right now I don't think they will slow down buying they will just lower their criterian instead of 10% net they will go down to 5% net etc.  They will continue buying even if it doesn't make financial sense as long as they can IPO it off and there is a demand for their fund.

One thing to note that hedge funds / insto capital still account for a small % of the entire market so academically their buying shouldn't effect  the prices beyond a sentiment point of view.  I would be interested in how this compares with people on the ground and bidding on REOs.

Account Closed · Answer

Tim C.
Silver Bay's Investor Presentation is certainly an interesting read, thank you for posting it.

Silver Bay will be a fascinating case study to determine if the single family rental business model can be profitable on a massive nationwide scale.  Silver Bay is the first publicly traded REIT to focus solely on single family rentals on a nationwide level.  Since they are publicly traded, we can easily track their financial performance every quarter.

Here are some links to Silver Bay's annual financial statements for the year ending December 30, 2012

- Income Statement (Annual Data): 2012 Income Statement
- Balance Sheet (Annual Data): 2012 Balance Sheet 
- Statement of Cash Flow (Annual Data): 2012 Statement of Cash Flow 
- Full 2012 Annual Report (SEC Form 10-K): 2012 SEC 10-K Report

Serge S. · Answer

What I find most interesting is page 13 ... look at the vacancy rate. They try to explain it away by saying most properties were purchased over the last six months but they started buying in 2009 and have nearly 50% vacant. I'm sure there is very little cash return but cost of capital is low and the appreciation is there. I also disagree that the fragmented market is in need of the good ole corporate touch. I simply don't believe they can manage more efficiently than the experienced local buyer.

Tim C. · Answer

Tim Breems thanks for posting the financial statements.  It's interesting to see they are operating at a loss while they are "waiting" for the property to stabilize.

I always find it amazing insto guys make money charging fees they are actually worse at investing if you look at the actual ROI than anyone in this forum.  But they do it in scale with other peoples money and charge fees I guess it's a different model and (it's investors lose out) anyway let's not go there.

I've found it's actually quite easy to reverse engineer where the funds are buying in case anyone is interested I spent a bit of time researching Atlanta as I own there.  If you watch news articles (setup a news alert using google alerts) relating to hedge funds / private equity you can quickly Blackstone etc.  A quite read of the news articles you will usually find they own a management company they bought out right to manage their property rentals.

You then google their management company, look at their rental listings.  Then search the address in county records and you'll find the LLC they bought in.  Most of the time they bought over 100 properties in that LLC so reverse look up a list of their LLC in county records and hey pronto you have a list of their properties.

I found one hedge fund is buying heavily in Gwinette county in Atlanta does match on the ground data?

One other point I noticed that just from the above posted fund they are having probs renting in las vegas and phoenix comparively the markets which have run up the most.  THis also matches news saying rents are dropping in vegas and phoenix.

I'm kind of worrying with Atlanta being the next market where hedge funds rushed in do you think there can be backward movement in rent due to increase in supply for rental properties?

Frank Iglesias · Answer

Thanks for sharing Tim.  We have seen funds buying up everything under creation in some areas.  Different funds have different buying criterias. Some are definitely banking on appreciation more so than others.  Some are not looking for high cash flow returns as a result.  It will be interesting to see how it plays out throughout the Atlanta area.

Ali Boone · Answer

All the funds I've run into and have had to dodge have been buying the turnkeys, so no rehab work necessary and everything in place. At least in Atlanta, the funds have driven prices big time! That market is where they have been buying heaviest lately, but they are in other areas too. Chicago, Houston, I've heard LA even. Ever since good 'ole Mr. Buffett did his video saying he'd buy up SFRs, the funds have deployed everywhere.

Where The Hedge Funds Are Buying

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