Even if you only follow real estate casually, you’ve probably heard of Blackstone, a private equity fund that has garnered wide media attention for pumping billions of dollars into the housing market. Their plan has been to acquire thousands of properties as rentals and then sell them in years to come.
The Local Market: Blackstone has been targeting cities throughout the country, and their presence has definitely been felt in the Sacramento area since they began buying tenaciously last August. Let’s take a look at some stats and areas of focus to help understand what they are doing locally.
Has Blackstone Been Slowing Down? Blackstone appears to have slowed down a bit over the past few months compared to the previous quarter. Their 96 purchases under $200,000 in Sacramento County on MLS during 2013 represent 4% of all sales under $200,000, which translates to 8% of all cash purchases under $200,000. Previously Blackstone had 324 purchases under $200,000 from August 2012 to December 31, 2012, which was almost 13% of cash sales for the time period. Blackstone has been a big player in the market, though ultimately they are really only one piece of the investor pie since 53% of all sales under $200,000 last quarter were cash deals. However, we must ask of course whether their recent slow down is a result of strategy or a lack of inventory. That is the critical question.
Blackstone’s Strategy: As you can see, over 80% of Blackstone’s purchases have been under $200,000. It seems they have been primarily focused on the first-time buyer market, and they’ve purchased traditional sales, flipped properties, foreclosures, short sales, private sales, trustees sales, non-performing loans directly from banks and really whatever they can get their hands on. They are buying as “THR California LP”, and Tax Records indicates they have purchased 548 properties since August 2012. However, some local media outlets state they have picked up over 1000 homes since last year. That could definitely be the case since there may very well be many private sales off the books, but since Tax Records only shows 548, I’ll stick with that and consider it a representative sample.
Sacramento County: THR California LP has purchased a total of 126 properties in Sacramento County so far in 2013 according to Tax Records. 96 of these sales were listed on MLS and priced under $200,000. As you can see, areas like Natomas, Rancho Cordova, Elk Grove, South Sacramento and North Highlands have been on their radar. At the same time Blackstone has seemed to pretty much avoid North Sacramento (Del Paso Heights), Oak Park, and well-established classic neighborhoods with higher property values.
Placer County: Blackstone has been purchasing in Placer County also, though activity has been substantially lower than Sacramento County as there have only been 26 sales so far in 2013. It seems most of the Placer County action has been in Lincoln, Roseville and Rocklin.
Yolo County: Clearly Yolo County has not been much of a target for THR California LP. They’ve had a sprinkling of purchases in West Sacramento and Woodland this year, and one in the City of Davis (a short sale condo at $245,000).
Implications of so much cash in the market:
- Diversify: If you work in real estate, continue to diversify your business above the $200K price level where the market is less saturated with investors.
- Save Money: If you’re trying to buy a home with little money down, it’s time to save more money. You may need it to compete with investors.
- Keep Frustration in Context: If you’re frustrated about so many cash investors in the Sacramento area right now, that’s definitely understandable and you’re not alone. However, it’s important to keep frustration with Blackstone in context. By no means am I trying to defend a private equity fund with billions of dollars, but I’m simply highlighting that they’ve purchased 96 of 1,202 cash sales as “THR” under $200,000 on MLS so far in 2013. I know that’s quite a bit for one investment fund, but the truth is there are many other investors in the market besides Blackstone. This means it’s important to let the data inform our conversations and complaints. (by the way, The SacBee posted an interesting article today highlighting some of the critiques of investment funds).
RealtyTrac Quote: By the way, here is a partial quote I gave in RealtyTrac‘s March 2013 Foreclosure Report. They did a story on institutional investors, and called me for an interview. I would link to the report here, but unfortunately the report is private and only for subscribers.
UPDATE ON 04/09/2013: I talked with a Sacramento Bee Reporter about their data that shows Blackstone has purchased 1000+ properties since August. The Bee reporter stated that Blackstone confirmed this number and his search of the Sacramento County Recorder also confirms this number (it is very tedious to do this search – I didn’t confirm). All things considered, it looks like only about half of Blackstone’s sales are recording in Tax Records for whatever reason. I am only using Tax Records because that is what I can control best. Nonetheless, despite a difference in numbers in my post, the data in Tax Records still appears representative of the overall trends when comparing the data in this post with The Sac Bee data. The SacBee also reported a huge downtrend in 2013 so far.
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Al Williamson says
Looks like they are staying out of the Oak Park area. We would welcome more responsible landlords. Nice update Ryan.
Ryan Lundquist says
That’s right, Al. I’d like to see Oak Park have more “catalytic landlords”. 🙂 Thanks Al.
Blackstone was targeting the newer suburbs (Roseville/Rocklin/Folsom/Elk Grove) but the numbers did not work in terms of ROI. They then decided to move to some of the older neighborhoods, which is why Natomas/South Sac/Rancho Cordova made sense. They are still looking for more homes, but the lack of homes has had them move to other areas, specifically LA/Orange County. The goal is to purchase 1300 homes statewide this year, so Bakersfield is the next target if they can make it work there.
Ryan Lundquist says
Thanks for the comment. I’ve heard they’ve been looking for a 7% cap rate, so it’s not surprising that Roseville and Rocklin didn’t work out across the board because property values are just so much higher. I’ll be curious to hear stats at the end of the year how many properties they did end up buying in California. The SacBee reported today that Blackstone has purchased nearly 1100 in the Sacramento area since August (my stats are based on Tax Records, which clearly does not encompass all of their stats). The market would look a bit different without Blackstone, though there are so many investors here. Wild times. Thanks again.
It’s forced prices up because it seems like they’re over paying, but that’s a long term risk they’re willing to take. Or so it seems.
Ryan Lundquist says
I agree. It’s all about thinking long-term and in terms of cap rates instead of how typical buyers view properties. We’ll see how it pans out. By the way, I’m curious how you came across the information for Blackstone’s original target and goals for California. I’m always open to insight if you want to share her or private via email. Thanks.
Anne Graviet, REALTOR, CHS, C-REPS says
When I got licensed in 2006 at the tippy-top of the market just before the crisis, I was told that 30% of our area sales were investor sales.
So, now that we’ve passed the crux of the housing crisis, I see Blackstone “as more of the same of what we’ve always had happening” and I think what they’re doing is brilliant and innovative. I hope it works out well for them, the renters, and for the neighbors.
The only thing that is “certain” about neighborhoods is that they change over time. Blackstone and other big money investors have the resources to maintain their properties and, in effect, maintain or increase area property values.
They’ll replace old heat pumps, keep the lawn mowed, the roof repaired, the cracked driveway resurfaced, the house painted, and the dead landscaping will be removed. Not all home owners perform regular maintenance, but Blackstone will.
And if you have a “bad neighbor” you can call Blackstone and get them evicted! Like for example, if their barking dog won’t shut up and is driving you mad 🙂
Ryan Lundquist says
You’re right, Anne. Investors have always played the market, and neighborhoods do change over time also. However, I would personally rather see responsible owner occupants in these properties instead of an institutional investor. I know the PR campaign is for Blackstone to look like the savior of neighborhoods, but I think that’s a bit much. While they are buying in mass, I do hope they care for their properties over the long haul. I know of one private deal they picked up from a landlord that has tenants and a very unkempt lawn. I’m not sure why they are not paying attention to that property.
The Yuba-Sutter area has experienced tremendous Blackstone presence. Many agents refusing to accept their offers do to their sneaky tactics and commission cuts. Now they’re going directly to the banks with default properties.
Ryan Lundquist says
Thanks Marisa for your insight. It’s interesting to hear about cuts in commission. Any mass buyer will quickly turn off agents if that’s happening. Do you work Yuba/Sutter as your primary area?