All Forum Posts by: Steve Cook

Josh,

Great post. Several thoughts.

1. Real estate investors will continue to get clobbered until they can develop a credible national voice to communicate a) how they saved the housing economy, b) how they spend nore than the federal government to restore the nation's housing stock and c) how they are creatng safe, clean, attractive rental housing for families who cant afford to buy. You, Chris and I made a good start with the BiggerPockets/Memphis Invest survey, but it was only a start. Local efforts are good idea and an important part of the response, but all the local efforts in the world won't mean a thing to the CNNs of the world.

2. This piece was bad but the worst messages didn't come from the mouth of the reporter, but rather from those she interviewed, each of whom had their own agendas, so we should not be surprised their remarks were ill-informed and self-serving. Why didnt she talk to someone who could tell the truth about investors? See point one.

3. Real estate investors have some serious enemies, including those who see themselves representng first time buyers, like NAR, and minority real estate organizatiions who perceive investors taking homes once owned by their customers and turning them into rentals.

4. Does bad publicity really hurt business? Ask someone who used to make a living as a mortgage broker. Ask Jamie Dimon. Ask Angelo Mozilo. Ask the NRA. Could more stories like this really hurt investors? Let me count the ways: tougher lending standards, new anti-flipping rules and other federal rules raising the cost of borrowiing, lender reluctance to work with small investors, local ordinances that raise the cost of rehabbing and maintaining single family rentals, reluctance from tenants to rent SFRs. Dont think that could happen? Neither did WalMart. Time to take our heads out of the sand, folks!

Bottom line. Individual investors are incredibly vulnerable. They have a great story to tell, but no one is telling it. They have seriouis opponents with a great deal more equity. expertise and experience in the arena of public opinion than investors. Its the ime to stop blaming the messengers and step up to the plate before its too late.

Here's the story that NPR's Marketplace did on hedge funds and first=time buyers...
http://www.marketplace.org/topics/economy/hedge-funds-crowd-first-time-buyers-out-housing-market

Marc:

As Brian, Chris and others on this thread have pointed out, funds are going about acquisition in different ways but the goal, as you say, is to accumulate large numbers in their portfolios.

From all reports, they are most active in the "sand states" that accounted for a lion's share of foreclosures until just a couple of years ago. Today, however foreclosure inventories and foreclosure discounts are growing in judicial state markets like Philadelphia, Cleveland, Baltimore, Chicago. It will be interesting to see if they follow the foreclosures to the Midwest and Northeast.

Hi Mike,

I find them just by Googling. They are not shy people and they put out news releases to attract folks like you.

As a matter of fact, I got a news release from one in Chicago this morning. I know that's a but of a distance from you but if you send me a message through BP I will be glad to sent it to you.

Steve

Brian;

Thanks for your excellent comments. You make some points I hadn't considered, especially the inflationary effect they are having on various aspects of the business.

I was interviewed by NPR's Marketplace Monday and the reporter's final question addressed how I saw this playng out. I wish I had chatted with you first!

One of the big unanswered questions is the how important the securitizing of rental contracts will be to these funds. What do you think will happen if a secondary market does not develop in the next two or three years... or maybe never?

One source told me he thought half the funds would fold if they cant securitize their rentals. Following the cautionary statements by the ratings firms. at least one, the Och-Ziff Capital Management Group LLC, a $31 billion hedge fund, has announced it is pulling out. Others are getting budge financing from a grouo of investment banks to stay in the game.

Steve

John,

Excellent question. I've been wondering the same thing.

In a way, the four REO-to-Rental pilot projects that FHFA just announced are wholesale deals that may foretell the future. These deals involved sales as well as rentals and the companies that won the projects were not traditional property managers but full-service well-financed operations like Colony Capital. By the way, Colony announced today it is raising another $150 million to buy foreclosures.

I wouldn't be surprised to see more lenders doing wholesale deals if they aren't already.

Pluses: Lenders get a lot of properties off their books and save on marketing and carrying costs. There is no negative impact on local housing markets. Hedge funds get a lot of properties in a single location at a good price and reduced acquisition costs.

Negatives: Individual investors and first-time buyers never see these deals.

Steve

Chris,

Great to hear from you!

You and I have talked about the competition these funds are creating for small investors, oftem driving up prices.

I just posted an analysis of the latest foreclosure data on the BP Blog. Demand is so strong that foreclosure prices are rising faster than prices of normal properties. Processing is still very slow but there are still 1.3 million foreclosures in the pipeline, about 150% as many as hit the market last year.

We know that those properties are concentrated in judicial states. So will we have a situation where supply is thin in the sand states where most investors and hedge funds are concentrated and a glut in markets like Cleveland, Philadelphia, Akron, Buffalo where inventories haved piled up?

Steve

Jake,

You make an interesting point. I would add that many of the funds are setting up their own property management subsidiaries to manage the rentals after the assets have been securitized, allowing for additional profits.

Steve

Hi Brandon!

Thanks for starting things off.

The best and most widely quoted estimate of the size of the hedge fund phenomenon is baed on a report from investment bankers at Keefe Bruyette and Wood. Earlier this year they estmated several dozen investment firms backed by $6 to 8 billion in private equity hedge funds plan to purchase between 40,000 and 80,000 previously foreclosed homes. That's probably six months old and very conservative.

Regarding total foreclosures, there have been 3.9 million completed foreclosures since September 2009. There were 830,000 completed foreclosures in 2011, and through October, we are running 17 percent below last year's level.

In addition to completed foreclosures, there are about 1.3 million properties in the foreclosure inventory.

With plans to spend billions on foreclosures and to convert single family rentals into a new asset class of securities, well-heeled hedge funds are creating both challenges and opportunities for the individual investors and small partnerships that ignited the residential investing boom.

How are hedge funds impacting your market and your business? Help us chronicle how they are changing face of residential real estate.