Large out-of-state investors are responsible for one in five Charlotte-area home purchases, a report Thursday shows, making the region the second-busiest market in the U.S. for such buyers.
Of 9,583 homes sold in the Charlotte-Gastonia-Concord region from May to July, 20 percent were bought by institutional investors, according to the report from real estate data firm RealtyTrac. Only the Atlanta region had a larger proportion, 24 percent.
Wall Street-backed investors began buying up Charlotte homes roughly a year ago, often targeting bank-owned and foreclosure properties, but nondistressed homes as well. On average, they’ve sought properties in good condition that they can buy for around $150,000 and convert into rentals, say Charlotte real estate industry insiders.
But such an influx of large investors gobbling up single-family homes raises questions:
What impact will the rental properties have on surrounding home values? What happens when the investors decide to sell the homes? Could the large volume of investor-owned properties propel prices still higher, causing a real estate bubble in Charlotte?
The phenomenon has already contributed to the rise in Charlotte home prices, observers say.
Early on, such investors targeted recession-rocked markets in the Western states, going through the inventory there before making their way into the Southeast. Charlotte is on investors’ radar partly because of its population growth, observers say.
“I think Charlotte’s widely recognized as an up-and-coming city,” said Mark Vitner, Wells Fargo economist. “It’s gotten a lot of good publicity nationally, and folks are looking to diversify their portfolios of investment properties.”
Some of the large players in Charlotte: American Homes 4 Rent, of Agoura Hills, Calif.; Blackstone Group, of New York; and Tricon Capital Group, of Canada. An Observer analysis in July found those three companies alone had bought millions of dollars in homes apiece in the area.
Aggressive and deep-pocketed, the investors are pushing out smaller, mom-and-pop types who cannot compete with the prices their larger rivals are willing to pay in the all-cash deals.
The large investors are eating into what is already a tight supply of homes for sale, which also helps boost prices.
John Bradford, CEO of Park Avenue Properties, said “there is no doubt” area home prices have risen because of the investors’ purchases. “It’s been about one year of real serious acquisitions,” he said.
According to RealtyTrac, Mecklenburg and Cabarrus counties had the highest percentages of homes sold to institutional investors in the Charlotte area from May to July. In each of those counties, 25 percent of the homes went to institutional investors. In Gaston County, it was 17 percent.
All three counties made it on RealtyTrac’s list of the “Top 25 Investor-Saturated Single-Family Rental Markets.”
Trend has persisted
RealtyTrac’s data go through July, but institutional investors have continued to buy homes in the region since then.
Blackstone, for instance, has closed on 26 homes in Mecklenburg County in just the past month, according to records filed with the register of deeds office.
The company has bought three other homes out of foreclosure in the past three weeks, records compiled by the Charlotte law firm Shapiro & Ingle show. American Homes 4 Rent has closed on 13 homes in the county over the same time period.
RealtyTrac defines an institutional investor as someone who has purchased at least 10 residential properties in a 12-month period.
Charlotte’s ranking hardly comes as a surprise to Bradford, whose Cornelius-based Park Avenue Properties is managing rental properties for “several national institutional investors,” although he declined to name them.
That wasn’t the case just 18 months ago. Back then, his primary property-management business was for homeowners who couldn’t sell or for investors who owned a handful of rentals.
Today, he still manages rentals for small owners, but institutional investors now make up as much as 30 percent of his business. The work generated by the institutional investors has been enough to allow him to increase his staff by roughly 15 people over the past year or so. He now employs about 43.
The investors are also arriving on the scene at a time when Charlotte’s rental market is strengthening.
From March to September, the Charlotte area’s apartment vacancy rate fell from 6.2 percent on average to 5 percent, according to Charlotte-based Real Data. Average rents rose from $842 to $868 during the period.
The overall rental market nationwide has been helped by the housing downturn.
“It made more sense to rent rather than buy, because buying you’re just sinking money into an investment that’s losing value,” said Mekael Teshome, PNC Financial Services Group economist. “That was the primary reason we went from having a housing boom to a rental boom.”
Teshome said Charlotte’s rental market is greatly helped by growth in the young-professional population, many of whom would rather rent than own.
‘New investment class’
The growth of the rental market and plenty of distressed properties for sale have fueled the interest of large investors nationally.
Some real estate investment trusts that focused only on single-family rentals have become publicly traded in the past year, according to a report last week by investment bank Keefe, Bruyette & Woods. More such firms are expected to do the same, the report says.
“This is a relatively new investment class as defined by Wall Street,” Bradford, of Park Avenue Properties, said. “Multifamily’s been an investment class for years. But the single-family residential product is an investment class that is definitely less than two years old.”
In Charlotte, distressed homes alone can’t account for the surge in investor purchases, Bradford said.
“The volume of homes they’ve picked up, I don’t think the REOs (real estate owned) and short sales alone could sustain the types of volume they’re looking for,” he said.
In some cases, he said, the investors have even bought lots in the Charlotte area for new homes to be built.
Institutional investors are looking for homes for as low as $70,000 to as high as $300,000, he said. The average purchase price, he said, is “in the mid-$100,000 range.”
Other reports have detailed the large percentage of investor-owned homes in Charlotte.
In March, housing data firm CoreLogic said institutional investors accounted for 21 percent of Charlotte home sales in 2012.
Vitner, the Wells Fargo economist, said institutional investors hope properties in Charlotte will diversify their portfolio and help them weather the next downturn.
“I’m not so sure that it will,” he said.
After all, he said, the last downturn showed that it’s possible for multiple housing markets to go sour at once.
“They tend to all go down at the same time,” he said. Staff Writer Andrew Dunn contributed.
Roberts: 704-358-5248; Twitter: @DeonERoberts
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