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Big investment groups buying up Charlotte homes

More Information

  • Interactive: Map of investment firm purchases
  • Charlotte’s big players

    Numbers are based on Mecklenburg County register of deeds data as of June 12.

    American Homes 4 Rent

    Homes bought: 410

    Average price: $145,960

    Total investment: $59.8 million

    Blackstone

    Homes bought: 102

    Average price: $137,136

    Total investment: $14 million

    Tricon Capital Group

    Homes bought: 47 (plus a portfolio of 550 rental homes from TPM Properties)

    Average price: $60,842

    Total investment: $2.9 million (plus $26 million for the rental portfolio)

    Ellington Capital Management

    Homes bought: 46

    Average price: $128,430

    Total investment: $5.9 million


  • How we crunched the numbers

    The Observer calculated home-purchase figures for the four investment firms by counting and totaling purchases through these companies’ subsidiaries, as recorded with the Mecklenburg County register of deeds. To get a rough approximation of what percentage of total home sales this constituted, reporters divided the number of investment-firm purchases by the total number of existing-home sales in the county. To determine the total number of existing-home sales in the county, reporters used data from the Charlotte Regional Realtor Association.



Wall Street-backed investment groups have emerged as a new breed of homebuyer in Charlotte, snapping up homes in middle-class neighborhoods across the city to turn them into rentals.

Four of the most active firms have spent at least $82.6 million buying more than 600 single-family homes in Mecklenburg County, one by one – most of them in the past four months, an Observer review of property records shows.

The volume of sales is much smaller than in markets like Phoenix and Tampa, Fla., where investors have already bought thousands of homes.

But in Mecklenburg County, those four firms have made up as much as 10 percent of the total existing-home sales in the county this year. And the total could be still higher: These companies often use subsidiaries with different names to execute their purchases.

For homeowners who have been looking to sell, these new buyers are a welcome sign and have jump-started the nascent housing market recovery. The investors are generally buying homes for between $100,000 and $200,000 and paying cash.

But after watching prices jump more than 15 percent in other markets, some economists and experts worry that the activity in Charlotte could fuel another housing bubble among middle-priced homes.

Others fear that these investors are crowding out individual buyers who might want to put down roots. If the investors pull out of the properties in five to seven years – as many observers expect them to do – it’s unclear what impact that might have on Charlotte’s housing market.

“It’s never been done before,” Wells Fargo senior economist Mark Vitner said. He said the institutional investors’ business model is unproven and comes with “all sorts of risks.”

Sales have been distributed widely across the county, though they’ve tended to cluster in the crescent stretching from the Steele Creek area, north to Huntersville, then following Interstate 485 in eastern Mecklenburg County.

Perhaps nowhere are the sales more concentrated than Steele Creek’s Planters Walk neighborhood, where investors have bought at least 30 homes in a community of about 700, the property records show. Purchase prices have ranged from about $110,000 to $175,000.

Homeowners there are only now starting to become aware of the sales.

“All they’re looking at is the bottom line. What is that going to create?” asked David Gersdorff, 43, from his front step last month.

He’s lived in Planters Walk for 13 years: “Are they even going to give a crap about the neighborhood? And what’s that going to do to the value of my house?”

Who’s here

The most active player in Charlotte appears to be American Homes 4 Rent, a Malibu, Calif., company that has become the nation’s second-largest single-family homeowner.

The company has amassed a portfolio of more than 14,000 homes in 20 states, largely in Texas, Florida, Arizona, Illinois and Georgia, according to securities documents filed last month as it prepares to go public.

American Homes 4 Rent has bought at least 400 homes in Mecklenburg County over the past year, an investment of nearly $60 million, the Observer’s review found. It also has a property management partner with an office on Catawba Avenue in Cornelius.

The nation’s largest homeowner, the private equity giant Blackstone, has bought more than 100 homes and counting. The firm markets and leases them under a subsidiary called Invitation Homes.

The city has also attracted smaller players, like investment groups affiliated with Toronto private equity firm Tricon Capital Group, and Connecticut’s Ellington Capital.

Ellington declined to comment, citing a “quiet period” in advance of an initial public offering for its rental business. American Homes 4 Rent, Blackstone and Tricon did not respond to requests for comment.

But in a blog post published on the company’s website, Blackstone defended its and other private equity firms’ home purchases. The company said it hasn’t been buying enough homes to appreciably change home prices; instead, the price appreciation is a function of a low inventory and historically low prices up to now.

Blackstone also said it’s been renovating abandoned and foreclosed homes, improving neighborhoods. And rental homes, Blackstone says, are an important part of the housing market.

“Renters should have the opportunity to live in a good neighborhood and send their children to good schools,” the company wrote.

Around the country

Charlotte is not the only market luring these big investors interested in rental properties. Atlanta, Dallas, Houston, Phoenix and Memphis, Tenn., are others, real estate experts say.

The investors started buying primarily in recession-rocked markets such as those in Arizona and California. But they began gravitating to the Southeast last year, said Sam Khater, an economist for Irvine, Calif.-based housing-data company CoreLogic. In the Southwest, he said, the housing stock is “fairly young” and, thanks to the dry climate, less likely to be deteriorated and in need of repairs, making the homes attractive to investors.

“As those markets began to really heat up, they began to rotate out and fan out to the Southeast, places like Atlanta, Charlotte, Tampa,” he said, adding that the strong population growth in those areas makes them a draw for investors.

In the Tampa Bay area, for example, reports of bidding wars have already become commonplace, said University of Central Florida economist Sean Snaith. Nearly half of all home purchases are made with cash, a sign that the purchase was made by a deep-pocketed investor. Home prices are up more than 15 percent in Florida over last year.

“My concern here is how do we transition from where we are now to normalcy,” Snaith said. “That’s not a sustainable situation in the housing market.”

The investors have been a bit slower to come to Charlotte. But the city, housing market experts say, is attractive because it’s a growing market where investors can buy houses for relatively cheap, especially when compared with what they would pay for properties elsewhere.

“A lot of these buyers are West Coast buyers,” said Chad Tate, owner of Charlotte-based Opening Doors Properties. “They can buy a house here for $50,000 that rents for $750 a month.”

At least one buyer has established a presence in Raleigh as well, though the effect appears to be less pronounced. By February, American Homes 4 Rent had bought 81 properties in Wake County for $13.3 million, The (Raleigh) News & Observer found. By July, the number of homes bought exceeded 200, property records show.

What they’re buying

Those unusually high rents have been another lucrative incentive for the investors.

The region’s apartment vacancy rate was 6.2 percent in March, the latest month for which data are available. In March 2010, the vacancy rate was roughly double that, said Charles Dalton, principal for Charlotte-based Real Data, which tracks the multifamily market.

In March 2010, the average monthly rent in the Charlotte area was $708, Dalton said. That rose to $842 in March of this year.

Charlotte-area real estate officials say the investors appear to be especially interested in middle-class neighborhoods in good school districts. Anthony Moore, co-owner of Charlotte-based real estate company Pike Properties, said the investors seem to want homes built around 1995 or later.

“Oftentimes they like … what we call ‘vinyl village’ here, the newer-built homes on slab with vinyl siding,” he said. “A lot of times they really won’t even look at the properties very hard. They’ll literally just buy sight unseen.”

Individual home sellers aren’t the only ones affected. Tate, of Opening Doors Properties, said he has had to change his business model. Two years ago, he could buy a bank-owned property for about $40,000, invest about $25,000 in it and flip it to a first-time homebuyer.

“That started drying up in the beginning of last year,” said Tate, who is also president of the Metrolina Real Estate Investors Association.

Tate blamed large investors for buying up the bank-owned properties. He hasn’t bought one since the spring of last year.

Instead, he buys more expensive sites, paying about $200,000 for them, knocks down the house that’s on the land and builds an $800,000 home on it. While it’s a business model that can be more profitable than flipping bank-owned properties, the pricier projects come with more risk, he said.

What happens next?

While homeowners are happy to see the values of their homes rise, the concentration of investor-bought homes is fraught with concerns.

Mekael Teshome, economist for Pittsburgh-based PNC Financial Services Group, which has bank branches in the Charlotte area, said some observers are concerned about what happens after the investors’ buying frenzy ends.

“The investors are ... driving up prices,” he said. “At some point, that’s going to end.”

Another concern some observers have centers on whether another real estate bubble – inflated, in part, by the investors – is forming, he said.

Vitner, the Wells Fargo economist, said this is the first time institutional investors have swept the U.S., snatching up single-family homes to rent them out, in what amounts to an untested business strategy. Typically, the people who bought rental properties were “mom-and-pop” investors, he said.

“I’m not quite sure how it’s going to work out,” he said.

Vitner said institutional investors have likely exaggerated the extent of the improvement in Charlotte-area home prices.

“It’s priced some traditional buyers out of the market because the investors typically pay cash and traditional buyers need to get a mortgage and it takes time to get approval – and, on top of that, the investors sometimes are paying above the appraised value.”

Vitner said the issue is raising questions about how the investors are going to collect rents, handle evictions and deal with problems, such as drug-related ones, on their properties.

Also, he said, “there’s execution risks, on both acquiring the properties and eventually selling them. Are you able to rent them for the right price?”

Dalton, of Real Data, said the investors’ purchases of rental homes will help strengthen the overall housing market. They will offer some competition for traditional apartments, although they won’t directly compete with them, he said.

“They’re targeting, I think, a little different niche of the market than your traditional apartment renter,” he said, adding that people have been shifting toward renting rather than owning homes in the aftermath of the housing downturn.

In Planters Walk, some purchases by the big firms are so recent, they haven’t yet been advertised, let alone rented.

Anthony Davis, 40, knew two neighbors on his cul-de-sac who sold to American Homes 4 Rent in the past few months. In a way, their purchases were good, he said.

“They came in and gave him his full price. It wasn’t even on the market long – maybe two months,” Davis said of one neighbor. “Last year, he was selling his house, and he couldn’t sell it.”

But Davis has lived in the neighborhood for 10 years and had grown tight with his neighbors. Would tenants feel the same way?

“I don’t know what it will do to the community,” he said.

Dunn: 704-358-5235; Twitter: @andrew_dunn Roberts: 704-358-5248; Twitter: @DeonERoberts
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