Development

Here’s why big-money Wall Street players have bought thousands of Charlotte homes

Wall Street is buying up thousands of houses in Charlotte

A small group of out-of-state companies have bought more than 10,000 houses across the Charlotte region, rapidly increasing their holdings from almost none just a few years ago. And rather than try to flip these homes to new buyers, they’ve turned
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A small group of out-of-state companies have bought more than 10,000 houses across the Charlotte region, rapidly increasing their holdings from almost none just a few years ago. And rather than try to flip these homes to new buyers, they’ve turned

People trying to buy a house in Charlotte have faced obstacles beyond scarce listings and fast-rising prices in recent years: In some cases, they’ve also been bidding against Wall Street.

A small group of out-of-state companies have bought more than 10,000 houses across the Charlotte region, rapidly increasing their holdings from almost none just a few years ago. And rather than try to flip these homes to new buyers, they’ve turned them into long-term rentals.

In Mecklenburg County alone, property records show Wall Street-backed rental companies such as Invitation Homes, spun off from private equity giant Blackstone Group, as well as American Homes 4 Rent and Tricon American Homes now own over 6,000 houses – triple the number from four years ago.

They’ve concentrated on buying moderately priced starter homes. And their buying activity over the last few years comes as affordable housing has emerged as a major issue in Charlotte, with increases in both rent and home prices outstripping wage growth.

If you’re a home buyer, some local real estate agents say the rental companies’ laser-focus on acquiring starter homes has made finding one more difficult for private buyers, potentially pushing prices up. For sellers, the companies often offer a quick, all-cash closing. If you’re a renter, it might mean dealing with an impersonal, out-of-state landlord instead of a mom-and-pop rental company with local roots.

Others worry that the companies will sell their houses as soon as they’re not profitable to own, swamping the market.

Realtor Kim Trouten, a partner with the Bovender Team/Allen Tate Realtors, said she sold about 10 houses to the rental companies in 2015. The companies moved quickly, she said, closing on their purchases much faster than individual buyers could.

“They would not even see the house,” said Trouten. “They would close in 15 days and immediately put it up for rent. That meant a lot of our first-time homebuyers lost the opportunity.”

The companies say they helped prop up the housing market after the recession, buying distressed properties and keeping them from dragging down neighborhoods. They also spent huge sums to renovate houses and prevent them from falling into disrepair, and paid back taxes when those were due.

Renting a house might be more appealing for millennials – who are waiting longer than previous generations to buy – and provides an option for people who lack the credit for a mortgage or savings for a down payment. And the companies say they’re professionalizing a market that’s long been dominated by small businesses of varying quality, using high-tech platforms to track service requests and keep properties in good repair.

“When you look at it holistically, we’re really a small part of the industry,” said Diane Tomb, executive director of the National Rental Home Council, a trade group that represents the big companies. She said the firms offer another option in a shifting marketplace.

“There’s a real desire for it,” she said. “Individuals want this between renting an apartment and buying their first home.”

Jack Corrigan, chief operating officer of American Homes 4 Rent, said the company likely outbids some buyers.

“There are occasions when someone bids against us and our all-cash offer is more enticing than someone who has a loan contingency,” he said. But he said he doesn’t think they buy enough houses to make a huge difference in the market.

Daren Blomquist, senior vice president of real estate tracking firm Attom Data Solutions, said the Wall Street buyers did help resuscitate the housing market when buyers were scarce. But case studies by Attom show the firms’ aggressive buying in some markets appeared to push prices up faster than they would have risen otherwise, hurting affordability.

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A house for rent on Castletown House Drive in Steele Creek, where national companies have aggressively bought houses and turned them into rentals. Davie Hinshaw dhinshaw@charlotteobserver.com

“These institutional investors rescued the housing market, to a large degree, and helped it from falling further,” said Blomquist. “That’s good for a lot of people. But the double-edged sword piece of it is these institutional investors have also helped create a market that’s hard to penetrate for first-time homebuyers.”

According to Attom, institutional investors (including smaller rental companies in addition to the national firms) went on their most intense home-buying spree in Charlotte between the end of 2012 and the end of 2014. Their buying peaked in the first half of 2013, when they bought almost 17 percent of houses sold in the Charlotte region – one in every six.

In the second quarter of this year, institutional investors accounted for just 5 percent of home sales in the region. Rising house prices have made bargains harder to find and the companies have turned to managing their thousands of houses and tenants.

Jonathan Osman, a Realtor and owner of Jonathan & Associates, said the national rental companies are still bidding on houses, but far less often than they were.

“A few years ago, you’d put the house on the market and within hours, the offers would roll in,” he said. “It was automatic.”

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A house for rent on Orchard Grass Court in Steele Creek, where national companies have aggressively bought houses and turned them into rentals. Davie Hinshaw dhinshaw@charlotteobserver.com

“These guys came in and bought at a ferocious rate,” he said. And the lure of a quick, all-cash closing made them attractive to sellers.

“It might make sense, rather than work with a buyer who’s going to string me along for three times as long and might not be able to close,” said Osman. But he said the firms have acquired a reputation with some local brokers for using tough tactics to close a deal after an offer is made, sometimes threatening to pull the plug if a seller won’t accept a reduced price after the inspection.

“They’ll send over a termination document and a price change document, and say: ‘Sign one and send it back,’” he said.

Rising home prices

A small group of companies now own huge portfolios of houses in the Charlotte region. Tricon, whose website urges people to “Live the dream without the mortgage payment,” owns 1,807. American Homes 4 Rent owns 3,056. Invitation Homes owns 3,110. Starwood Waypoint owns just over 1,000. Privately held Progress Residential owns about 1,300, according to property records.

$165,800Charlotte median home sale price in July 2012

$236,000Charlotte median home sale price in July 2017

Still, the companies don’t own a huge percentage of the total number of single-family houses across the whole Charlotte region – only about 1 percent. In Mecklenburg County, where there are about 255,000 single-family houses, the major rental firms own about 2.5 percent of the total, property records show.

Home prices in Charlotte have shot up rapidly in the past five years, as demand returned and supplies remained low. In July 2012, the median home sale price stood at $165,800. By this July, the median sale price had increased to $236,000, according to the Charlotte Regional Realtor Association – a 42 percent jump.

Charlotte City Council member LaWana Mayfield believes the companies’ purchases have contributed to inflated prices and driven buyers out of the market.

“They’re creating a false market,” she said. Mayfield is also concerned about what will happen when the companies decide to sell. “When the reality sets in, how many of these new units are just going to be resold, and what is the quality of life going to be at those units?”

Tomb disputed the notion that the national rental companies have pushed first-time buyers out of the market. She said they simply haven’t bought enough houses to make that much of a difference.

“That’s been sort of a misnomer,” she said. “They’re not buying in such numbers to make a huge impact.”

In Charlotte, the companies that report their average rents appear to be roughly in line with or even below the average for a single-family house, which Trulia pegs at about $1,385 a month.

Tricon reported its Charlotte-area rentals average $1,093 per month, while American Homes 4 Rent said its houses in Charlotte go for an average of $1,490. Invitation Homes said its houses rent for $1,385 per month, exactly the Charlotte average.

Focus on starter homes, foreclosures

Over the past few years, the companies raised billions of dollars from private equity investors eager to find a new way to cash in on the housing market. In a move reminiscent of the mortgage-backed securities that fueled the housing boom in the 2000s, the companies have packaged their income from rent into bonds and sold those to raise hundreds of millions of dollars more cash.

Some of the biggest, such as American Homes 4 Rent, which was founded by the former head of Public Storage, and Invitation Homes, the Blackstone spinoff, have gone public, selling billions worth of stock to investors to fund still more growth.

Most of the companies’ purchases are $100,000 to $200,000 starter homes. They typically plow roughly $20,000 into renovations on each house before putting it back on the market as a rental.

Bundling thousands of rent checks creates a big payday. Invitation Homes took in almost $229 million worth of rent in the most recent quarter, while American Homes 4 Rent took in $205 million, filings show.

The companies seek out three- or four-bedroom houses attractive to families around Charlotte’s edge, in places like Steele Creek and the neighborhoods off Mallard Creek Church Road. On some streets, such as Orchard Grass Court in Steele Creek, they own more than a fifth of houses. On other blocks, like Rathangan Drive, they own almost half.

In the wake of the recession, the companies also pounced on the glut of foreclosures they could scoop up at reduced prices. Property records across Charlotte show how many of the sales went down.

For example, on Riding Hill Avenue in University City, records show a couple bought a house in 2006 for $184,500. That was near the peak of the market. The house eventually fell into foreclosure. In 2014, American Homes 4 Rent bought the house at a foreclosure sale for $128,500 – or $56,000 less than the previous owners.

Occasionally, they buy more expensive properties: American Homes 4 Rent paid $806,000 to buy a stately, 4,500 square-foot brick house on Colony Road, and $1.3 million for a 7,000 square-foot house at Lake Norman’s tony Peninsula Club, both in foreclosure. (The Lake Norman house rents for almost $6,500 a month, records show.)

The companies’ long-term impact on the housing market remains to be seen.

“I think overall, we’ve been a positive,” said Corrigan, the American Homes 4 Rent executive. “But there’s no denying we compete.”

Ely Portillo: 704-358-5041, @ESPortillo

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