Wall Street Wagering on a Permanent Suburban Renter Class

Expectations that the economic downturn of the COVID-19 pandemic will create a wave of homeowners leaving the market, whether by choice or necessity, are driving big acquisitions by private equity firms and Wall Street investors.

September 28, 2020, 5:00 AM PDT

By James Brasuell @CasualBrasuell


Bank Owned

Olivier Le Queinec / Shutterstock

With so many Americans housing rich and cash poor, Wall Street interests are ready to pounce, like they did in the wake of the Great Recession.

The skyrocketing home values of the past decade mean that many Americans are flush with equity and watching housing prices continue to sore as inventory tightens during the pandemic. Many of those same Americans are also facing unemployment and economic uncertainty, temporary harbored by eviction and foreclosure moratoriums that will eventually expire, with expensive bills attached.

According to an article by Ryan Dezember, the situation is a "potential bonanza" for rental-home investors. "Since the coronavirus pandemic began, big single-family landlords have raised billions of dollars for homebuying sprees," according to Dezember.

"The most house-hungry of these investors are the rental companies formed a decade ago to gobble up foreclosed homes by the thousands. They were expanding before the pandemic, wagering on a permanent suburban rental class. The economic distress brought by the lockdown has only made investors more excited about such companies’ prospects." According to Dezember, "investors, a mix of individuals and investment firms that have been buying more than one in every 10 homes sold in the U.S. over the past decade."

Big names and big dollar figures populate the tally provided by Dezember to assess the specifics of Wall Street's interest in single-family rental properties:

Investors have bought nearly $900 million of new shares sold by the two largest rental companies since the pandemic began. Other home-rental operations have also sold nearly $6 billion of rent-backed bonds, including three deals presently in the market, according to Akshay Maheshwari of Kroll Bond Rating Agency.

Beyond that, investment firms Blackstone Group Inc., Koch Industries Inc., J.P. Morgan Asset Management and Brookfield Asset Management Inc. have each made nine-figure investments in single-family rental companies eyeing expansion.

There has been some political action to counteract the Wall Street land grab that this article predicts. Elizabeth Warren co-authored an opinion piece published in August that called for federal legislation to protect homeowners and renters from the coming wave of foreclosures and evictions and for additional federal legislation that would prevent the sale of delinquent mortgages to private equity firms. The California State Legislature also approved a law this year called "Homes for Homeowners, Not Corporations" (AB 1079). According to an opinion piece written in August by the author of that bill, State Senator Nancy Skinner (D-Berkeley), the bill prohibits bundling, which corporations have commonly employed to buy large amounts of foreclosed houses at once.

Friday, September 18, 2020 in The Wall Street Journal

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