private equity fund

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: 

1. 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.
2. 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.
3. 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.

Any thoughts?

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