Big Investors Find Benefits in Small-Investor Deals

By Heather Taylor0 Comments

If the real estate investment markets seem a little more crowded in some parts of the country right now, that’s because some big players have moved in.

Giant private-equity companies are discovering what amateur and small-operation investors have known for years: There is potential in buying, fixing and renting distressed properties. Firms including Blackstone and Colony Financial have been swooping into regions, mainly in the Southeast, and buying thousands of under-water homes, according to a new report from the Federal Reserve Board of Atlanta.

Blackstone has spent more than $4 billion on about 25,000 houses so far, while Colony has invested more than $1 billion in more than 8,200 properties and, as of March, still had $1 billion more in purchases planned.
There seems to be a general method to the firms’ actions, according to the report:

Investors are targeting markets with two broad traits: places that suffered abundant foreclosures and the recession- driven decline in home prices, but ones that also offer sound long-term economic prospects. Along with several cities in the West and Southwest, Atlanta and Florida’s metropolitan areas— including Miami, Orlando, and Tampa—fit that bill, in the view of these investors. Investors are acquiring houses through numerous channels, including foreclosure auctions—the source of roughly half of Blackstone’s portfolio—and normal individual purchases, as well as acquiring homes from government-sponsored mortgage enterprises, financial institutions, and other investors. It’s the old mantra, with a twist: buy low, fix up, rent, and then perhaps sell high.

While a similar trend occurred with apartment buildings in the early 1990s, experts still aren’t clear on what impact this new boom in single-family home investing will have on the overall real estate market, according to the report.

Get more details from the report and let us know in the comments: Have you noticed companies buying real estate in bulk in your market? Is this making competition stiff for distressed properties?