The Carlyle Group is the Latest “Smart Money” Investor to Ditch the Buy-to-Rent Trade

At first, the rise in residential real estate prices across the U.S. was hard to explain. The economy remained in the dumps, while college kids were saddled with debts and poor paying jobs. A large portion of the demographic that typically enters the first home market was simply put, not in the market. Pretty soon it became obvious what was happening. Insider types and “smart money” was simply buying up every property they could find in order to turn around and rent them to the average citizen who had just been priced out of the market due their all cash bids. Add to this tens of billions of dollars in foreign laundered money and voilà, a new housing bubble was born.

However, as more and more lemmings began to chase the trade, initial investors have started to get nervous. First it was Och Ziff, then OakTree, then Carrington and finally now perhaps the most infamous of all insider private equity firms, the Carlyle Group. So now we have four well known and respected investors actively and publicly trying to exit the trade. As usual, they are selling to suckers such as life-insurance companies and real estate investment trusts.

From Bloomberg:

Carlyle Group LP (CG), the private-equity firm with more than a third of its $2.3 billion U.S. real estate fund in apartments, is reducing holdings of multifamily housing as rent growth slows from a post-recession surge.

Apartment-rent growth is slowing as the U.S. homebuying market rebounds and a wave of multifamily building adds to supply. In the third quarter, tenants on average paid 3 percent more than a year earlier after landlord concessions, down from 3.9 percent annual growth in effective rents in 2012, research firm Reis Inc. (REIS) said in a report today.

Apartment-rent growth is slowing as the U.S. home buying market rebounds and a wave of multifamily building adds to supply. In the third quarter, tenants on average paid 3 percent more than a year earlier after landlord concessions, down from 3.9 percent annual growth in effective rents in 2012, research firm Reis Inc. (REIS) said in a report today.

As it sells apartments, Carlyle is focusing investments in areas such as senior housing, self-storage units and manufactured homes, where demand tends to be driven by life changes such as retirement or marriages, and isn’t so closely tied to changes in employment and gross domestic product, Stuckey said.

About one-third of the firm’s real estate investments are in properties that are more directly affected by the economy, such as office and retail.

“Our basic view is we’re in a low-growth environment,” Stuckey said.

They know full well what’s coming…

Full article here.

In Liberty,
Mike

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