Rush into Real Estate Rentals Becomes a Stampede

On the same day the Census Bureau released the Q2 2012 Housing Vacancies and Homeownership report showing single family rental vacancies in the second quarter were lower than they have been since the first quarter of 2006, yet another well financed asset management company announced it will spend more than a billion buying, renting and selling distressed homes.

The homeowner vacancy rate declined to 2.1 percent from 2.2 percent in the first quarter, underscoring the opportunity that exist in the $3 trillion single family market.

“America is moving toward a Rentership Society, and I believe the opportunity to purchase and professionally manage single-family rental homes represents one of the most compelling investment opportunities across all asset classes,” said Oliver Chang, co-founder of Sylvan Road Capital LLC, an Atlanta-based asset management firm that announced plans yesterday to invest over $1 billion into distressed properties and convert them into rental homes.

According to a company news release, the $1 billion will be invested over the next two years, and Sylvan Road will acquire over $300 million in distressed single-family homes through initial capital from an unnamed private equity firm.

Silvan is only the latest of a variety of new, well-funded players entering the distress sale-single family rental market that is dominated by individuals and small, entrepreneurial investor-owners.

Asset management firm TCW, which specializes in fixed-income securities and oversees $128 billion in assets, recently launched the TCW Home Place Partners fund, as an opportunity for wealthy investors to invest in the “housing turnaround” by buying foreclosed homes from banks and federal government agencies.

Beazer Homes USA, Inc. in early May announced Beazer Pre-Owned Rental Homes, Inc. (BPRH)- founded by the company and includes an investor group led and arranged by affiliates of private equity ship Kohlberg Kravis Roberts & Co. The Beazer fund will acquire, refurbish and lease recently-constructed, previously owned single-family homes on a large scale in select markets in the United States, according to Reuters.

Other players in the SFR space include Los Angeles-based Colony Capital, now in the process of raising $750 million; San Francisco-based Landsmith L.P. which is joining forces with Detroit-based Precise Associates LLC to invest $100 million in acquiring single-family homes and renting them out; GTIS Partners; Oakland-based Waypoint Real Estate Group; Carrington Mortgage Services, and more.

“Until last year, single-family-home rentals was a mom and pop market,” Stephen Duffy, an investment banker at Moss- Adams Capital LLC, an Irvine, California-based firm that finances real-estate investments told Bloomberg in March. “Now, it’s grabbed the attention of institutional private equity because foreclosures haven’t cleared and these properties can generate high yields for years.”