Here’s why Wall Street is snapping up poorer single-family homes

Investors look for yield in properties big firms tend to avoid

Feb.February 17, 2018 05:00 PM

Jonathan Gray and Tawan Davis

Wall Street companies that started snapping up single-family homes in the wake of the foreclosure crisis tended to stay away from cheaper properties rented by poorer tenants. But a new wave of investors are buying the homes cast aside by the big, established landlords, Bloomberg News reported.

“Larger companies are getting rid of underperforming assets,” explained Jade Rahmani, an analyst at Keefe, Bruyette & Woods Inc. “That’s leaving an opening for companies to move more downstream, companies targeted to the affordable market, to lower-income residents — because there still could be an opportunity to earn a return.”

Institutional buyers had traditionally avoided cheaper properties because poorer tenants tend to have less financial stability and move around more, and cheaper houses often require more expensive repairs.

But the extra risk comes with potentially higher yields, and that’s what new investors are targeting.

Startup Promise Homes, for example, paid $22 million in August to buy a portfolio of 220 homes around Atlanta from Invitation Homes, the company built by Blackstone Group.

The investments also provide an opportunity for landlords to spread a message that they’re helping poorer renters.

Tawan Davis, a former executive at the Peebles Corporation, purchased roughly 60 Philadelphia row houses that rent for about $700 to $1,200 through his company Steinbridge Group. He said the idea is to provide affordable housing that lets families remain in gentrifying neighborhoods.

“Our goal is to be a long-term presence in these neighborhoods, not to be a part of the problem,” he said. [Bloomberg] – Rich Bockmann

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