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investment funds in Sacramento

Tech companies & Wall Street targeting residential real estate

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Tech companies and investment funds have their eye on residential housing. I wrote about this a few months ago and wanted to do a follow-up piece. Here are some things on my mind as well as fresh visuals. Any thoughts?

TWO THINGS:

1) iBuyers are on a rampage:

The iBuyer model has been on a buying spree in many parts of the country. They are purchasing to flip and here is a breakdown of their activity in the Sacramento region based on Tax Records (Realist).

  • Opendoor, Zillow, and Redfin own 690 units in the region.
  • Opendoor and Zillow each own about 330 properties.
  • The average price of acquisition was $555,000.
  • The median price of acquisition was $545,000.
  • Besides a few outliers they are NOT targeting the luxury price point.
  • iBuyers represent 6.4% of all listings and pendings right now.
  • The iBuyer model does not represent 93.6% of the active market.
  • Acquisitions are spread throughout with half of purchases below the regional median price and half above.

2) Invitation Homes is back:

I reported a few months ago that Invitation Homes is back and since May they’ve purchased 77 units in the Sacramento region. In 2012 and 2013 they bought tens of thousands of units across the country in many markets. At the time they were backed by Blackstone, but these days they are not affiliated with Blackstone.

What is Invitation Homes buying?

  • They purchased 77 units since May 2021.
  • They’ve targeted homes typically between $450-550K.
  • 74% of their acquisitions have been under $500K.
  • They bought 0.5% of all MLS sales since May (half of one percent).
  • 88% of their purchases had an MLS number, which means the bulk of these sales were publicly listed for sale.
  • Invitation Homes is definitely competing with first-time buyers even though overall the fund doesn’t have a massive footprint in the market.

TAKEAWAYS:

1) Huge rent growth is propelling big funds: Having lofty rent gains in recent years has caught the attention of big investors and is essentially allowing them to play the market these days. It’s wild to think investors can presumably make the numbers work after ten years of price growth.

2) Hype vs Reality: Often the narrative is that investors are dominating the market and buying everything. For instance, there were sensational tales a few months back about Blackrock purchasing way above market value, but I have yet to see any data to back up those claims (I’m open ears if someone has something). Anyway, there is no mistaking growing interest from tech companies and Wall Street within residential real estate and we need to watch what they do. But we also need to keep sensational narratives in check.

3) Profit and Convenience: The iBuyer model is nowhere near a dominant force in the marketplace, but we’ve seen exponential growth over these past three quarters. A dissertation can be written on what these companies are doing, but I want to make a simple point. I often hear about how this model is designed to help make things more efficient for consumers, but let’s not forget these companies are here to infiltrate the existing real estate model to make profit. So in the midst of all the slick advertisements let’s be real about the big focus, which is to make money off consumers.

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Questions: Do we want Wall Street and tech companies to own more of the real estate process? Is this a good thing for the public?

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Blackstone’s $196,000,000 shopping spree in Sacramento

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Did you ever dream of winning a shopping spree as a kid? I used to imagine myself having ten minutes to fill up a cart at Toys ‘R Us with whatever I wanted. I would’ve headed straight for the baseball cards, bikes, toy guns and sports equipment. Of course I was never lucky enough to do something like that, but I’m still holding out hope for a Home Depot or Lowes spree one of these days.

$196 Million of Local Real Estate: If you didn’t know, there was a $196 million dollar real estate shopping spree that happened in the Sacramento market over the past year or so. As reported by The Sacramento Business Journal, the private equity fund Blackstone purchased roughly 1,100 homes in the local market since January 2011 (with the bulk of these purchases being after August 2012). In all Blackstone has acquired about 21,000 properties in the United States over the past year. In the Sacramento area they’ve done business as THR California, IH2 Property West and IH3 Property West, and they’re holding their properties in hopes of making more money by creating bonds from rentals. 

housing supply and median sales price by sacramento appraisal blog blackstone

Goodbye Blackstone? Over the past months Blackstone has seemingly begun to pull back on their aggressive purchasing plan. They’re still buying properties, but as of late they’ve been laying low. Some say they are done, but at the same time their system has worked well and they can easily get things moving with IH4 in 2014 if they want. Ultimately their local presence lately has felt nothing like it was last year when they were a definite catalyst in driving up values for the rest of the market. Depending on how you look at it and whether you bought or sold this past year, it’s probably either good or bad to have had one investment fund step in to buy 1,100 properties in such a short time span. Instead of parsing the arguments on both sides though, I’d rather focus on their slowdown and simply say it looks like we are seeing Blackstone’s year of market dominance fade….. for now at least. In the mean time we can expect to continue to see conventional and FHA buyers pick up their slack while Blackstone and other cash buyers are more dormant or pull out of the market. While it’s easy to criticize Blackstone, let’s consider one last thing. If you look at the graph above, you’ll see they came in at just the right time as the real estate market hit bottom after years of decline, and they also look to be slowing down at a good time also. Maybe there is a business lesson here to consider?

Blackstone Invitation Home Signs in Sacramento

UPDATE on 11/21/2013: The Sacramento Bee posted a story that states Blackstone has purchased nearly 1,500 homes in the Sacramento area. RealtyTrac shows closer to 1100 and Tax Records is about half of what RealtyTrac shows. All things considered, it is not easy to track the actual number because different sources say different things.

Questions: Any thoughts on Blackstone as they have been slowing their pace? What store would you like to win a shopping spree at?

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Blackstone, Natomas & Cash in Sacramento

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Wall Street collided with Main Street over the past year in the Sacramento market as institutional investors like Blackstone made mass purchases. Here is an image in the Natomas area of Sacramento to illustrate the homes that Blackstone bought in this neighborhood over a period of twelve months. Keep in mind these are only purchases listed in Tax Records, which is important since Realist data at times has only included about 50% or so of Blackstone’s acquisitions. It’s amazing to see so many new rentals by one investment fund, don’t you think?

THR IH2 Blackstone sales in Sacramento August 2012 through August 28 2013 per Tax Records - by Sacramento Appraisal Blog

While it is striking to see mass cash purchases, it’s also important to consider there has been less cash in the Sacramento real estate market lately – just as the graph below helps illustrate. As housing inventory has been climbing and price increases have begun to slow down, investors have seemed to take their foot of the gas pedal a bit over the past 60+ days. It seems like Blackstone has been slowing down too based on what I’ve been hearing from agents and also observing data-wise over the past few months (less sales over the past 90 days compared to the previous quarter). In my mind it is important what Blackstone does since they have been a huge player in the market. In short, this is worth watching over time.

cash purchases Sacramento County

Any thoughts, questions or stories to share? Feel free to comment below.

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Jaw-dropping real estate stats (even if you don’t like numbers)

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Did you like math class as a kid? Or were you more of a literary buff or science geek? I was the type of kid who had a love-hate relationship with math depending on what we were learning and who my teacher was. Honestly though, I often wondered then how numbers or theories could really be used in the real world.

Today let’s look at some stats that are bound to leave an impression – even if you don’t like numbers. Let’s check out the amount of cash in the Sacramento real estate market under $200,000.

Graph of cash sales in Sacramento Placer and Yolo County under 200K - by Sacramento Appraisal Blog

Did you know that 50% of all sales in Sacramento County under $200,000 have been cash purchases for about eight months now? How does that strike you? If you’re like most people when hearing numbers like this, it’s astounding. This is only for detached units too. When we include condos and attached units in this figure, we see the percentage increase to 53.12%.  Sacramento County has a much stronger cash presence than Placer and Yolo County. For reference, there were thousands of sales under $200,000 in Sacramento County over the past 60 days, but only 80 in Placer County (so take Placer County stats over these past two months with a grain of salt).

cash fha conventional stats in 2013 Sacramento real estate market - by Sacramento Appraisal Blog

The turning point in terms of cash purchases really began in early 2012 as news of the bottom of the market hit and foreclosures began to dry up. But then it went to a whole different level when investors like the private equity fund Blackstone made a very strong entrance in August 2012 by purchasing over 1100 properties in eight months in Sacramento County.

Why does the $200,000 price level matter? This is important because the median sales price is barely above $200,000 in Sacramento County. Remember, the median price is the one in the middle, which essentially means half the sales in the county are above $200,000 while the other half of sales are below that level. Since cash purchases are basically driving the market under $200,000, it tends to have an impact on the entire market by boosting overall numbers. Additionally, one of the byproducts of enormous cash percentages is a decline in FHA loans, which makes it more challenging for many would-be owner occupants.

Question: Did you like math as a kid? How do these numbers strike you? Share them with someone today to see what type of response you get.

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