{"id":3261,"date":"2022-07-08T15:00:00","date_gmt":"2022-07-08T15:00:00","guid":{"rendered":"https:\/\/frankbuysphilly.com\/wall-street-sfr-firms-accused-of-stripping-equity-from-neighborhoods\/"},"modified":"2022-07-08T15:00:00","modified_gmt":"2022-07-08T15:00:00","slug":"wall-street-sfr-firms-accused-of-stripping-equity-from-neighborhoods","status":"publish","type":"post","link":"https:\/\/frankbuysphilly.com\/wall-street-sfr-firms-accused-of-stripping-equity-from-neighborhoods\/","title":{"rendered":"Wall Street SFR firms accused of stripping equity from neighborhoods"},"content":{"rendered":"


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\"HW-Wall-Street-and-Single-Family-Homes\"<\/figure>\n

Institutional players in the single-family rental (SFR) market have been expanding their reach <\/a>into select American neighborhoods since the global financial crisis of 2008, but they now find themselves in an uncomfortable limelight.\u00a0<\/p>\n

They are under scrutiny in Congress and accused of gentrifying minority neighborhoods and allegedly displacing large numbers of people of color \u2014 Black residents in particular.<\/p>\n

That is a major takeaway in a Congressional subcommittee report on a recent survey of the nation\u2019s five largest institutional owners and operators of SFR homes. The survey, sponsored by the Democrat-controlled U.S. House Financial Services Committee\u2019s Subcommittee on Oversight and Investigations (the subcommittee), was sent to the following companies: Invitation Homes<\/strong>; American Homes 4 Rent<\/strong>; FirstKey Homes<\/strong> (owned by Cerberus Capital Management<\/strong>); Progress Residential<\/strong> (owned by Pretium Partners<\/strong>); and Amherst Residential<\/strong>.<\/p>\n

As of the end of the third quarter of last year, according to the report, those five companies owned a total of 280,637 single-family rental properties.<\/p>\n

\u201cTo fund their acquisitions, companies raise billions of dollars in capital from hedge funds, pension funds, ultra-high net worth individuals, and other institutional investors, who such companies consider to be their customers,\u201d the House subcommittee\u2019s report on its survey findings state. \u201cThe ability of SFR companies to purchase homes with cash provides a competitive advantage.\u201d<\/p>\n

The financial muscle<\/a> of these institutional SFR companies also is revealed in securitization deals tracked by Kroll Bond Rating Agency<\/strong> (KBRA). The bond-rating agency\u2019s data shows that so far this year, institutional players \u2014 including companies like Progress Residential, FirstKey Homes and Tricon Residential<\/strong> \u2014 have undertaken total of 11 private-label SFR securitization deals involving some $8.2 billion in corporate notes secured by a total of some 27,200 rental properties, primarily single-family dwellings. <\/p>\n

\u201cDespite the growing appetite for SFR investments, institutional equity ownership in the overall SFR market today is still estimated at only around 2%,\u201d a market insight report<\/a> from MetLife Investment Management<\/strong> (MIM) states. \u201cMIM believes [however] that institutional SFR ownership is likely to grow significantly over the next decade.<\/p>\n

\u201cMIM\u2019s analysis indicates that simply moving institutional ownership of SFR from 2% today to 10% [of the investment-property market] in the future will result in a need for over $200 billion in incremental debt financing.\u201d <\/p>\n

Today, the bulk of second homes and investment properties nationwide are still owned by smaller real estate firms and so-called \u201cmom-and-pop\u201d<\/a> investors. Critics of the institutional SFR companies, however, point out that those national figures distort the concentrated nature of the problems created by the \u201cWall Street\u201d investors.<\/p>\n

\u201cSecuritized SFR homes are heavily clustered in the Sunbelt, which comprises the Southeastern, Southwestern and Western U.S. region, and in communities that previously experienced high foreclosure rates following the 2008 financial crisis,\u201d the House subcommittee\u2019s report on its findings states. \u201cFor example, in the third quarter of 2021 alone, institutional investors bought 42.8% of homes for sale in the Atlanta metro area and 38.8% of homes in the Phoenix-Glendale-Scottsdale area.\u201d<\/p>\n

The House subcommittee punctuated its survey results by holding a public hearing recently \u2014 on Tuesday, June 28 \u2014 titled \u201cWhere have all the houses gone? Private equity, single-family rentals and America\u2019s neighborhoods.\u201d<\/p>\n

\u201cToday’s hearing will examine troubling issues regarding the mass predatory purchasing of single-family homes by private-equity firms, including the adverse impact predatory purchasing has had on first-time homebuyers, the working class and people of color,\u201d said U.S. Rep. Al Green, D-Texas, chairman of\u00a0t<\/a>he House subcommittee, in his opening remarks.<\/a>\u00a0\u201c…These private-equity firms have the advantage of being able to purchase these homes with cash; therefore, they easily out-compete individual buyers who may require loans. This all has the troubling effect of displacing residents of color and leading to gentrification of these communities.\u201d<\/p>\n

The major findings of the House subcommittee\u2019s survey of the five leading institutional SFR companies, coupled with data from the U.S. Census Bureau\u2019s American Community Survey, are as follows:<\/p>\n