Tags: Invitation Homes

The Oligarch Recovery – Renting in America is Most Expensive Ever

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Characterizing the upward transfer of virtually all American wealth to a handful of oligarchs a “recovery,” represents a grotesque insult to the english language as well as common sense.

The writing was on the wall from the very beginning. I knew as soon as TARP passed that we as society would regret the day we bailed out the bankers who destroyed the world economy. It didn’t take long.

Bailed out Wall Street banks went ahead and paid themselves record bonuses less than one year after the bailouts. Then, in early 2013, the financial community’s next scheme to feed off the carcasses of the American public became crystal clear. They wanted to become America’s slumlord by buying millions of foreclosed homes and then renting them back to former homeowners. When I realized what was happening I published the post, America Meet Your New Slumlord: Wall Street. Here’s the opening paragraph:

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U.S. Vacancy Rate Rises for First Time Since 2009 in Wake of Apartment Building Construction Surge

Screen Shot 2014-10-02 at 12.25.50 PMThis is an interesting headline, and one that anyone paying attention to the domestic real estate market should pay close attention to. We know that millennials aren’t the ones buying new homes in America (that market has been cornered by private equity and hedge funds as well as foreigners laundering suspect money), but those millennials who do posses the cash flow to move out on their own definitely appear to be renting. Due to this trend of renting as opposed to buying by average citizens, there has been an enormous construction boom of apartment complexes across the U.S.

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Mortgage Standards Are Plunging – It’s Muppet Fleecing Time All Over Again

In February, I highlighted the fact that subprime loans were about to make a return in my piece: Subprime Mortgages are Back…This Time Marketed as “Second Chance Purchase Programs.” In that article, I posited that with the “all cash” private equity shops and hedge funds no longer able to make good returns through buying new homes to rent, these investors would need some sucker to sell to in order to realize a return (Blackstone’s purchases have plunged 70% recently). That sucker, as always, will be the retail muppets, and those muppets will be lured in through subprime. This is now starting to happen in earnest.

The following article from the Wall Street Journal is both depressing and disturbing. Rather than allowing home prices to reset at a lower level after the 2008 crash where to normal buyers could afford a sane 20% mortgage, our central planners decided to do “whatever it takes” to re-inflate the housing bubble. This was achieved through wealthy investment pools buying properties for all cash. The trouble is, with home prices now inflated by these financial buyers and no real increase in wages, homes are simply unaffordable. So what do you do? You bring back subprime and get the peasants long real estate with essentially zero money down all over again. Truly remarkable.

From the Wall Street Journal:

While standards remain tight by historical measures, lenders have started to accept lower credit scores and to reduce down-payment requirements.

One such lender is TD Bank, Toronto-Dominion Bank’s U.S. unit, which on Friday began accepting down payments as low as 3% through an initiative called “Right Step,” geared toward first-time buyers and low- and moderate-income buyers. TD initially launched the program last year with a 5% down payment. It keeps the product on its books and doesn’t charge for insurance. Borrowers also don’t need to put down any of their own cash if a family, state or nonprofit group provides a down-payment gift.

So a measly 5% downpayment wasn’t good enough. They had to drop it to 3%. Frightening.

The changes also are a recognition by lenders that the business of refinancing old mortgages, which had been a huge profit center for banks, is nearly tapped out. To generate future profits, banks will have to compete for borrowers who may not have perfect credit or large down payments.

Valley National Bank, a community bank based in Wayne, N.J., lowered down-payment requirements to 5% from 25% this month on mortgages for certain buyers in New York, New Jersey and Pennsylvania. Next month, Arlington Community Federal Credit Union, based in Arlington, Va., will begin accepting 3% down payments on mortgages up to $417,000, down from 5%.

Yes, you read that right, 25% to 5%. Holy fuck.

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Is “Buy to Rent” Dead? – Rents on Blackstone Housing Bonds Plunge 7.6%

Just last week, I highlighted the fact that the return of subprime home loans was just another bankster scam to get private equity players and hedge funds out of the properties they had rushed into throughout the U.S. by dumping them on retail muppets. More evidence that this may indeed be the case emerged today as Bloomberg reports that rents backing the properties in the Blackstone’s rental-home bonds dropped 7.6% from October to January.

Look, I have no idea what the assumptions were, but with home prices surging throughout the nation, shouldn’t these Wall Street slumlords have considerable pricing power? Apparently not.

From Bloomberg:

Rents collected on the collateral for the first U.S. rental-home securities declined by 7.6 percent from October to January, according to Morningstar Inc.

Payments declined as expiring leases and early tenant departures left residences backing the bonds of BlackstoneGroup LP’s Invitation Homes vacant, Becky Cao and Brian Alan, analysts at Morningstar’s credit-ratings unit, said in a report. While 8.3 percent of the properties were vacant or occupied by delinquent renters in January, renewals on 78.5 percent of leases that expired the prior month exceeded the analysts’ expected rate of 66.7 percent.

Christine Anderson, a spokeswoman for New York-based Blackstone, declined to comment.

Morningstar said it expects a stabilized vacancy rate of 8 percent for homes underlying the first deal after it granted AAA grades to $278.7 million of the notes. Wall Street ultimately may sell more than $20 billion a year of rental-home bonds as investors become comfortable with those tied to smaller landlords, according to Ryan Stark, a director at Deutsche Bank AG, which structured and helped underwrite the transaction.

Keep flipping them homes ‘merica.

Full article here.

In Liberty,
Michael Krieger

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Subprime Mortgages are Back…This Time Marketed as “Second Chance Purchase Programs”

With interest rates up sharply from the lows and Blackstone and other private equity firms holding billions of dollars with of properties with no one to sell to, the time is ripe for a little muppet fleecing. Leading the charge to find new tax-payer backed subprime loans to take some properties off the hands of Mr. Schwarzman is none other than Wells Fargo. I previously forecasted this in my piece: Stage Two of the Housing Bubble Begins: Blackstone to Lend to Others for “Buy to Rent.”

They aren’t the only ones though. Citadel Servicing Corp, the country’s biggest subprime lender, is also getting in the action. The best and worst part of this story is the way these new loans are being marketed. Specifically, as “Low Credit Score Debt Consolidation Program” as well as a “Second Chance Purchase Program.”

This Central Bankster game isn’t complicated. Provide access to cheap funds to financial cronies, pump the bubble, fleece the serfs. Rinse. Repeat.

From Reuters:

(Reuters) – Wells Fargo & Co, the largest U.S. mortgage lender, is tiptoeing back into subprime home loans again.

The bank is looking for opportunities to stem its revenue decline as overall mortgage lending volume plunges. It believes it has worked through enough of its crisis-era mortgage problems, particularly with U.S. home loan agencies, to be comfortable extending credit to some borrowers with higher credit risks.

So far few other big banks seem poised to follow Wells Fargo’s lead, but some smaller companies outside the banking system, such as Citadel Servicing Corp, are already ramping up their subprime lending. To avoid the taint associated with the word “subprime,” lenders are calling their loans “another chance mortgages” or “alternative mortgage programs.”

It is looking at customers with credit scores as low as 600. Its prior limit was 640, which is often seen as the cutoff point between prime and subprime borrowers. U.S. credit scores range from 300 to 850.

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Manhattan Apartment Rental Rates Drop for Third Month in a Row

Now this is interesting. Investors looking at real estate should be aware of two main things at the moment. Those two things relate to what is really driving this centrally planned, manufactured rebound in U.S. real estate. It’s really a tale of two distinct trends. In formerly hurting markets such as Arizona, Nevada and Florida, private equity investors have flooded into what is a now gigantically crowded to “buy-to-rent” trade. Meanwhile, in the prime markets such as New York City and San Francisco, we have seen the “money laundering trade,” where rich oligarchs move their often ill-gotten gains into trophy real estate assets abroad.

We have seen many signs all year that the first key pillar to the manufactured rise in housing was becoming strained, as rents continued to rise while incomes continued to fall. It doesn’t take a genius to realize that this can only last so long, and many of the early investors in “buy-to-rent” have already gotten out or are trying to.

As far as the second pillar, well at some point the oligarchs will have purchased enough homes in London and Manhattan and then what? Interestingly, the seemingly unstoppable rental market in Manhattan is showing signs of cracking. What this ultimately means is unknown, but it’s an interesting data point nonetheless.

From Bloomberg:

Manhattan apartment rents fell for a third month in November and the vacancy rate reached the highest in at least seven years, signs the market is weakening amid a spike in homebuying and the lure of leasing in Brooklyn.

The median monthly rent in Manhattan dropped 3 percent from a year earlier to $3,100, according to a report today by appraiserMiller Samuel Inc. and brokerageDouglas Elliman Real Estate. The vacancy rate climbed to 2.8 percent, the highest since the firms began tracking the data in August 2006.

“With the scare about rising mortgage rates, it poached a lot of demand from the rental market,”Jonathan Miller, president of New York-based Miller Samuel, said in an interview. “On top of that, what else is poaching demand from the Manhattan rental market is Brooklyn.”

Manhattan landlords agreed to offer concessions, such as a month’s free rent, on 7.2 percent of all new leases in November, up from 4.2 percent a year earlier.

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A Closer Look at the Decrepit World of Wall Street Rental Homes

This new incursion by hedge funds and private equity groups into the American single-family home rental market is unprecedented, and is proving disastrous for many of the tens of thousands of families who are moving into these newly converted rental homes. In recent weeks, HuffPost spoke with more than a dozen current tenants, along with former employees who recently left the real estate companies. Though it’s not uncommon for tenants to complain about their landlords, many who had rented before described their current experience as the worst they’ve ever had.

A former inspector for American Homes 4 Rent who worked in the Dallas office said he routinely examined homes just prior to rental that were not habitable. Though it wasn’t his job to answer complaints, he said he fielded “hundreds of calls” from irate tenants.

– From the Huffington Post’s excellent article: Here’s What Happens When Wall Street Builds A Rental Empire

This is a topic that I have been writing extensively on since the beginning of the year. In fact, I don’t think there’s another topic I have focused so intently on in the whole of 2013, with the exception of the NSA revelations. It all started back in January with my post titled, America Meet Your New Slumlord: Wall Street, which received a huge amount of attention in the alternative media world.

I knew from the start that this whole “buy-to-rent” thing would be a disaster. Over the last decade or so, everything that Wall Street touched has turned into a scheme primarily focused on parasitically funneling wealth and resources away from society at large to itself. This is no different. They call it a “new asset class.” I call it Wall Street serfdom.

What makes this article even more interesting is that it’s not simply greed, it is also obvious that these Wall Street firms have no idea what the fuck they are doing. For example:

Former employees of the companies, who spoke on condition of anonymity because they worry about jeopardizing their careers, said their former colleagues can’t keep up with the volume of complaints. The rush to buy up as many homes as possible has stretched resources to the point of breaking, these people said. 

My advice to people out there in the rental market, is they should try to avoid Wall Street rentals. The three main companies highlighted in this article are: Invitation Homes (owned by Blackstone), Colony American and American Homes 4 Rent. Unfortunately, it appears these companies may try to hide their presence in certain markets so you may have to do additional digging. For example, WRI Property Management is the local agent of Colony American in Georgia.

More from the Huffington Post:

There’s no escaping the stench of raw sewage in Mindy Culpepper’s Atlanta-area rental home. The odor greets her before she turns into her driveway each evening as she returns from work. It’s there when she prepares dinner, and only diminishes when she and her husband hunker down in their bedroom, where they now eat their meals.

For the $1,225 a month she pays for the three-bedroom house in the quiet suburb of Lilburn, Culpepper thinks it isn’t too much to expect that her landlord, Colony American Homes, make the necessary plumbing repairs to eliminate the smell. But her complaints have gone unanswered, she said. Short of buying a plane ticket to visit the company’s office in Scottsdale, Ariz., she is out of ideas.

“You can not get in touch with them, you can’t get them on the phone, you can’t get them to respond to an email,” said Culpepper, whose family has lived with the problem since the day they moved in five months ago. “My certified letters, they don’t get answered.”

Most rental houses in the U.S. are owned by individuals, or small, local businesses. Culpepper’s landlord is part of a new breed: a Wall Street-backed investment company with billions of dollars at its disposal. Over the past two years, Colony American and its two biggest competitors, Invitation Homes and American Homes 4 Rent, have spent more than $12 billion buying and renovating at least 75,000 homes in order to rent them out.

Most who spoke with HuffPost said they moved into their rental homes only to find that renovations they were assured were comprehensive amounted to little more than a fresh coat of paint and new carpeting. Tenants said they immediately discovered major mechanical and plumbing problems: broken water heaters and air conditioners, broken toilets and in some cases even vermin infestations, including fleas, silverfish and rodents.

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Blackstone’s Head of Private Equity: “We Are in the Middle of an Epic Credit Bubble”

We are in the middle of an epic credit bubble, in my opinion, the likes of which I haven’t seen in my career in private equity.

– Joseph Baratta, Global Head of Private Equity at the Blackstone Group

According to CNBC, the above statement was made this past Thursday at the Dow Jones Private Equity Analyst Conference in New York City. While I certainly can’t disagree with his sentiments, I do find it a bit bizarre coming from someone so high up at Blackstone. More than any other firm, Blackstone has been aggresively buying up real estate all over the U.S. in all cash bids, playing a huge role in inflating another housing bubble. A bubble in which the average citizenry is being outbid by Blackstone and other private equity firms, and then in turn is forced to rent housing from Wall Street. Not only that, remember I highlighted back in July that Blackstone “is preparing to expand its bet on the housing recovery by lending to other landlords.” 

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You’re Fired! American Homes 4 Rent Dismisses 15% of its Workforce

Earlier today, I published a piece discussing the ridiculousness of the latest centrally planned housing bubble, and I also described some of the things I have gotten wrong with regard to real estate in the past several years. Well here’s one thing I got right. In early May I wrote an article titled: Las Vegas Housing: 8% of Single Family Homes Vacant, Yet New Construction Permits Up 50%. In it I wrote:

Taking bets as to how soon after its IPO American Homes 4 Rent will go BK.

Fast forward to today, and we see that a month after its IPO, American Homes 4 Rent is already firing 15% of its staff. Yep…


From Bloomberg:

Aug. 23 (Bloomberg) — American Homes 4 Rent yesterday fired a group of workers, with a focus on acquisition and construction staff, after the housing landlord reported a fiscal second-quarter loss, according to a person with knowledge of the terminations.

The company, owner of almost 20,000 single-family homes, has cut about 15 percent of its workforce this year, including an earlier round of terminations before its initial public offering last month, said the person, who asked not to be identified because the information is private. The Malibu, California-based company, which raised $705.9 million in the IPO, had a net loss of $14 million, or 15 cents a share, on revenue of $18.1 million in the quarter ended June 30, according to a statement this week.

Losing money at the top of a new housing bubble? No es bueno.

Single-family landlords have struggled to turn a profit while acquiring homes faster than they can fill them with tenants. Hedge funds, private-equity firms and real estate investment trusts have raised more than $18 billion to purchase more than 100,000 rental houses in the past two years. American Homes 4 Rent, founded by B. Wayne Hughes, is the largest single- family landlord after Blackstone Group LP’s Invitation Homes, which has spent more than $5 billion on 32,000 homes.    

American Homes 4 Rent executives Peter Nelson, Jack Corrigan, Sara Vogt-Lowell and Janice Stack didn’t respond to e- mails and telephone messages seeking comment on the firings.    

Craig Smith, 55, a property-compliance inspector from Columbus, Ohio, said he received a termination notice after nine months with American Homes 4 Rent. Smith, who earned about $50,000 a year, said he saved the company money by finding more than $7,000 in invoice errors last month alone.

“It’s a complete shock,” he said in a phone interview. “I was out working and they called me to the office and told me I was cut.” 

“As far as being able to put money to work, I mean we could easily ramp back up to $300 million-a-month pace if we have clarity that we would have that capital available,” he said. “But we don’t want to get too far out over our skis.”

Might be a little late for that pal.

American Homes 4 Rent owned 19,825 properties for an investment of $3.4 billion as of July 31, according to its earnings statement. About 56 percent of the company’s homes were leased as of June 30.    

Thank you Benjamin Bernanke.

Full article here.

In Liberty,

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The Las Vegas Housing Market has Gone Full Chinese

Let’s face it, the Las Vegas real estate market has gone full Chinese.  By full Chinese I mean a centrally planned bubble has been created that is just asking to blow up.  I’ve covered the renewed insanity of the Las Vegas market before, but this article from yesterday’s Wall Street Journal provides even more detail.  In a nutshell, as a result of Assembly Bill 284, which essentially made foreclosures impossible in Nevada, extremely delinquent homes are not coming for sale, and this phony market signal is leading to rampant overbuilding and price speculation.

Here are some numbers. Utility data showed nearly 64,000 vacant homes in Las Vegas at the end of last September, only 8,000 of which are on the market. Meanwhile, new home sales are up 87% and new building permits are up 52% this year. What’s the end result? Another bubble, but this time one where Blackstone and other private equity firms are pricing out average citizens with elevated all cash bids.  USA! USA!  From the WSJ:

LAS VEGAS—In a city dotted with tens of thousands of vacant houses, Jericho Guarin figured it would be easy to buy his first home. But nearly a year after beginning a search late last summer, he has come up dry.

“It has been a nightmare,” says the 37-year-old U.S. Air Force officer. “There are plenty of empty houses, but they’re just not for sale.”

Thank you for your service Mr. Guarin, now go rent from Blackstone.

Many real-estate agents, home builders and consumer advocates argue that the law, intended to remedy foreclosure-processing abuses, has backfired. Some owners who are behind on payments aren’t maintaining their homes as banks refrain from eviction proceedings. The perverse outcome: Inventory shortages have spurred new developments despite a glut of properties stuck in foreclosure limbo.

“The people hurt most by this law are the middle class,” says Steve Hawks, a real-estate agent in Henderson, Nev. He refers to the phenomenon wrought by the foreclosure measure, Assembly Bill 284, as the “A.B. 284 bubble.”

The middle class…what’s that?

Mr. Guarin, the Air Force Captain, is preapproved for a mortgage backed by the Veterans Administration for up to $185,000. But like many buyers who need financing, he is at a severe disadvantage because sellers often prefer all-cash deals that won’t be tied up by a low appraisal or other red tape. “There’s no way I can match the cash offers,” says Mr. Guarin.

With investors in the game, more properties are commanding prices above asking—a phenomenon real-estate agent Bryan Lebo knows all too well. Recently, he listed a bank-owned property for $86,000. The home, which he said needed around $20,000 in repairs, drew 41 offers—39 of them all-cash—and sold to an investor for $135,000. “If you’re an honest working person, you pretty much don’t have a chance,” says Mr. Lebo of current market conditions.

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