- Wall Street landlords raised $110 billion to buy homes but have had a quiet year.
- One large transaction, and one large listing, could signal that investors are ready to start buying.
- Macro factors, like steadier home prices and interest rates, could trigger more bulk home purchases.
The single-family rental market, a popular playground of Wall Street landlords in 2020 and 2021, has been in a deep-freeze for the last year. Rising borrowing costs and a shakier housing market halted most transactions, leaving idle much of the $110 billion raised to buy homes.
But the optimism was never broken.
Even though some Wall Street firms were busier selling than buying in the early days of 2023, the mood among the investors, brokers, and property managers that feed off the more than $4 trillion industry is anything but funeral. Last month, more than 1,700 of them whooped it up at an annual industry gathering on Miami's South Beach, marking a record number for the IMN-sponsored conference where dealmaking is always top of mind.
Just a few weeks later, it looks like their schmoozing is paying off.
Pretium, the largest private owner of single-family homes run by former Goldman Sachs mortgage executive Don Mullen, landed a bulk purchase of 4,000 homes — many already rented — from builder DR Horton, according to Bloomberg. And Barry Sternlicht's Starwood Group has begun exploring a sale of 2,000 of its homes, ostensibly to capture the strong demand for its properties as it deals with investor redemptions.
There are chances that today's deals are opportunistic — or potentially out of necessity from funds needing "liquidity" — and not the beginning of a new heyday for buying homes in bulk. But to two experts that see the inquiries, there's little doubt that slumbering investors are waking up.
"Over recent weeks we do seem to be experiencing a bit of increased market activity," in terms of deals trading and investors making inquiries about funding deals, Gary Beasley, CEO of the single-family rental trading website Roofstock, wrote to Insider on Saturday. The company, which was valued at nearly $2 billion last year, says it has facilitated more than $5 billion in deals.
Avenue One, a single-family rental asset acquisition and management firm that just raised $100 million to expand its marketplace, is getting more inquiries about what's available, said Allison Arest, head of the company's marketplace. One client who'd gone dark on purchases, and had begun paring their portfolio, recently asked to start seeing portfolios of homes again, she told Insider on the sidelines of the IMN gathering.
"We're on the precipice," she said. "For the first time in a long time, I feel as if the majority of the participants are a bit more optimistic."
The case that things are getting better
The fog that has enveloped the industry has begun to lift, said people privy to deals, or at least talk of deals. Topping the "positive signals," according to Beasley, are signs that inflation is easing and a break — at least for now — in Federal Reserve interest rate hikes.
Second, the threat that homes would be worth less a month after they were purchased is lifting, said Beasley, noting that investors feel that "prices have likely stabilized."
Because of America's housing shortage, home price declines were moderate or never happened at all, especially in the Sun belt and Southeastern markets favored by institutional landlords. Nationally, home prices only dropped 5.1% from June 2002 to January 2023, according to the S&P CoreLogic Case-Shiller Home Price Index. According to Morgan Stanley's chief economist, Ellen Zentner, prices should only drop 2% this year.
An observation by the Fed chief himself injected optimism into the broader financial markets. Housing appears to have hit its bottom and is "maybe moving up a little bit," Fed Chair Jay Powell told reporters earlier this month.
It could take many more months before landlords are comfortable with the new home price and interest rate environment, however, said Henchman LeMaistre, president and co-founder of institutional single-family rental property management firm Picket Homes.
"Honestly, it feels like everybody's just trying to kick the can right now until they can figure out inflation and rates," LeMaistre said.
But Picket's own investors are spending: the firm just raised $20 million to help grow its business.