Larger players prep to enter the market
Colin Wiel just can’t avoid the bubble.
The head of a software startup in the middle of the dot-com craze of the late ’90s, Wiel sold off the company as the market crashed. His next foray took him into real estate and away from his engineering background.
Initially just a side interest, Wiel invested in office and multifamily properties. He loved that he actually bought and held real — not virtual or digital — assets that appreciated in value over time.
At least until the mortgage market fell apart. “It was a bit scary,” said Wiel, noting that the housing collapse presented a new opportunity to buy up distressed single-family properties, and rent them out to would-be tenants.
Wiel and former NFL place kicker Doug Brien founded Waypoint Homes in late 2008 with an eye on declining Bay Area house values.
“When I did the math, I realized I could get more yield from family homes than I could on any other asset class in real estate,” Wiel said. “I was intrigued by that.”
LARGE-SCALE DEALS
The Oakland, Calif.-based company holds about 1,000 properties, mainly around San Francisco, worth about $150 million. Wiel said they look to expand that portfolio to 8,000 homes in the next couple years as more investors jump onboard, including an Ivy League university that he declined to identify.
Single-family rentals are a hot topic with investors, Wiel said, in a territory traditionally occupied by the mom-and-pop manager. Waypoint closed a deal in January with GI Partners that could be worth as much as $1 billion, the same month Carrington Holding Co. and Oaktree Capital Management announced a partnership to buy up to $450 million in foreclosed homes.
Waypoint is also involved in the talks for a large-scale bulk-REO deal with regulators in Washington, Wiel said. Wall Street firms, unnamed by Wiel, are exploring their own ventures in distressed-property rentals.
“We’re seeing quite a lot, and more and more every day,” he said. “We’re the largest so far, but there are some much larger players that are preparing to enter it rapidly.”
As his company expands nationally, Wiel said Waypoint will look for areas with a sizable distressed market along with potential profit margin and price appreciation. But investors might not always have much of a choice where they buy, said Jim Warren, senior vice president at Austin, Texas-based PropertyAccess.
Bulk deals often include homes across different metropolitan areas and asset types, Warren said. His company works primarily with investors to maintain properties, and sets a minimum of 500 units for its clients.
In a perfect world, Warren said, investors would buy in places with declining unemployment and distressed property inventory, along with “landlord-friendly laws” and rising rent rates and home values. But often, investors come up with their own formula.
“Everybody’s got slightly different models as to how they’re dictating where,” Warren said. “They can find those dials and turn those dials. That’ll help tell them and filter their cities.”
WHERE TO INVEST?
So where could an investor feel best about their distressed-property venture? Often what a traditional homebuyer wants in a purchase location, an investor likes as well. Both want a good value in a place where jobs are plentiful, and where the housing market’s worst days are done.
The interests of distressed property buyers, however, can fly in the face of troubled homeowners. Buyers prefer areas with short foreclosure timelines, so they can snap up defaulted or foreclosed houses quickly and without much deterioration.
Assuming investors would enter only markets flush with property, HousingWire’s rankings exclude any metros with fewer than 5,000 foreclosure filings as of December. Those filings include any notices of default and foreclosure sale, as well as lender-owned property.
That barrier narrowed the field to 46 metro areas, from 5,162 fillings in Louisville, Ky., to Chicago’s nearly 97,000 tallies.
The tabulations also take into account unemployment, year-to-year change in foreclosure filings, average discount on distressed-home sales compared with normal transactions and the length of the foreclosure timeline in the respective state. Foreclosure data comes from RealtyTrac and unemployment data is from the U.S. Department of Labor.
Mind, these are not exact statistical calculations, as the weight and importance of each measure vary, and some potentially important data points are not included. Extra consideration was given to cities that fell among the top or bottom rankings for each category.
The result of the data provide for an interesting juxtaposition. Markets with more distressed properties often have higher unemployment rates, and vice versa. This makes economic sense, though it doesn’t work well for investors.
And, of course, independent research is highly recommended before making any rash decisions of where to invest in distressed property.
See the March 2012 magazine flip book to view the top five and bottom five markets for second-home buyers.
