The Role of Investors in the SingleFamily Market in Distressed Neighborhoods: Lessons from Atlanta …and from Cleveland, Las Vegas, and Boston National Housing Conference Solutions 2013 Dan Immergluck Professor School of City and Regional Planning Georgia Tech Atlanta, Georgia Likely REO-Investors Ownership Disproportionately Concentrated in Distressed Neighborhoods Level Likely-Investor Level ofofLikely REO-Investor Ownership, DSF units, Ownership, December 20112011 City of Atlanta no DSF parcels LRI MRI HRI VHRI 0-0.76% (0 - 50%ile) 0.77-5.87% (50-75%ile) ´ 5.88-11.98% (75-90%ile) 11.99%+ (90-100%ile) 0 1.5 3 6 Miles Demographics and REO Activity by Neighborhood Type LRI MRI HRI VHRI median % African-American (2010 Census) median poverty rate (2006-2010 ACS) median vacancy rate (2010 Census) 10.6% 3.6% 7.9% 83.6% 16.7% 13.7% 90.1% 36.2% 20.6% 94.4% 40.1% 33.8% % REO sales to likely investors, 2010-2011 14.0% 27.3% 47.3% 46.1% % REO sales to investors to small investors, 2010-2011 87.1% 68.0% 59.3% 67.6% $131,850 $40,000 $18,593 $14,750 42.7% 32.3% 28.5% 26.5% 4.4% 8.8% 16.2% 17.0% median price of REO sales, 2010-2011 % REO sales to investors 2009-2010, resold w/in 1 yr % REO sales to investors 2009-2010, resold w/in 1 yr to investor Largest Buyers of REO, Fulton County, 2008-09 and 2010-11 20 largest investor buyers of REO, 2008-09 JOHN GALT ENTERPRISES LLC BLUE SPRUCE ENTITIES LLC ALAIMO ANTHONY DOUG COKER PROPERTIES LLP RDM HOLDINGS LLC PAVILACK INDUSTRIES INC WESTLINE MANAGEMENT COMPANY LLC B & Z INVESTMENTS LLC STONECREST INCOME & OPPORTUNITY FUND CF TWENTY FOUR LLC MID GROUP LLC ATLANTA REAL ESTATE INSIDERS LLC NATIONAL ASSET MANAGEMENT GROUP BIRKHOLZ JOHN PROPERTY ACQUISITIONS INVESTMENTS LLC MORRIS ROYCE HABITAT FOR HUMANITY IN ATLANTA INC SOUTHERN DEVELOPMENT HOLDINGS GROUP LLC GRINMARD GROUP INC SB HOLDINGS LLC Market share of top 10 investors (of all likely investors): Market share of top 20 investors (of all likely investors): # of REO purchases, 2008-09 99 70 53 52 50 49 47 44 44 37 36 36 34 33 32 32 31 30 30 28 9.9% 15.7% 20 largest investor buyers of REO, 2010-11 HARBOUR PORTFOLIO LP ATLANTA NEIGHBORHOOD DEV PARTNERSHIP INC CPI HOUSING FUND LLC HABITAT FOR HUMANITY IN ATLANTA INC APD SOLUTIONS FULTON LLC TOP RENTAL RETURNS LLC ALAIMO ANTHONY EQUITY TRUST COMPANY USA RENTAL FUND LLC TRR ATLANTA LLC INTERCONTINENTAL ACQUISITIONS LLC ORCHARD TERRACE ESTATES LLC ASSET MANAGEMENT & INVESTMENTS LLC CSF ENTERPRISES LLC KIDDER PROPERTIES LLC HYC FINANCIAL LLC STONECREST INCOME & OPPORTUNITY FUND AFFORDABLE HOUSING ASSISTANCE INC ELEVON PROPERTIES LLC REVITALIZE DEVELOPMENT LLC Market share of top 10 investors (of all likely investors): Market share of top 20 investors (of all likely investors): # of REO purchases, 2010-11 49 44 39 37 35 31 29 28 26 23 23 19 16 16 15 14 14 13 13 13 12.2% 17.8% Learning from conversations with Atlanta investors… • Acquisition factors: crime, vacancy, homeownership; building attributes less important • All-cash financing is dominant (but price points are low) • In low-income neighborhoods, investors generally preferred tenants with Housing Choice Vouchers (HCVs), due to the stability of the rental stream • Problems using property managers; some vertically integrate; others focus on aligning incentives and close oversight • No investors complained about excessive code enforcement; some viewed lack of enforcement as a major problem • Some institutional investors avoiding “distressed” neighborhoods Atlanta Cleveland Las Vegas Boston Typical All-In Costs Under $75k Under $50k, often less Under $150-200k Over $150k Investor Characteristics Small investors dominate; occasional bulk buying Small investors dominate; some bulk buying More foreign investors, many small investors Local investors; somewhat more concentrated; 51% of large investor purchases=condos Investor Strategies Switched from flipping to buy-torent Flipping; little buyto-rent Buy-to-rent dominant Buy-to-rent dominant; higher prices may lead to quicker exits Rehab Activity HCVs key; hard to do buy-to-rent without HCV in distressed areas More than minimal rehab requires subsidy Newer stock Routine substantial requires less rehab rehab when property in poor condition Financing Mostly cash Mostly cash; some hard money Mostly cash Cash common but also hard money; refinancing via community banks Lessons for Practice and Policy • • Investor behavior fluid – function of market conditions • Housing and vacant property code and enforcement provide critical context for local investor behavior • In distressed neighborhoods with low market rents, substantial rehab for buy-to-rent often not feasible without subsidy (e.g., HCV) NSP-type/gut rehab generally not viewed as sustainable model for buy-to-rent; standards and cost-structures must be realistic and sustainable Without subsidy, “milking” behavior and abandonment is more likely HCV program must be well-managed locally • Sustainable sources of financing/subsidy may be needed to support responsible, buy-torent activity in distressed neighborhoods, especially in weaker-market metros; must include quality control/inspections • Need for partnerships/methods to bring institutional investors into distressed neighborhoods in responsible ways