Like the Dos Equis Beer commercial, I don’t always read Salon, but when I do it is an interesting article. Like the one pointed out to me by Jill, “One percent’s rental nightmare: How Wall Street scheme blew up in its face.”
I’ve followed the Wall Street rental scheme for some time. You know the basics by now: Big Money investors decided to buy up all the foreclosed properties their pals at the banks created during the financial crisis, and rent them out to many of the same people who lost their homes. Then, they started selling securities backed by the rental revenue, just like the mortgage-backed securities from the crisis. Profiting off their own failure: It was Wall Street’s perfect plan.
There was just one problem: turns out that institutional investors have no idea how to manage rental properties.
That has become clear through a series of new statistics from early investors, who regarded themselves as the trailblazers of a hot new asset class. For example, nobody has purchased more properties and converted them into rentals than Blackstone, holders of roughly 45,000 nationwide. Invitation Homes, a Blackstone subsidiary, issued the first rental-backed security last November, and just released its first of this year, 2014-SFR1, worth $1 billion and based on 6,537 properties in selected markets, including Phoenix, Atlanta, Sacramento, California, several parts of Florida and Riverside County, California. Yet while these areas have tight housing inventory, vacancies at the Invitation Homes properties have surged.
As of May 31, the vacancy rate for the homes in 2014-SFR1 stood at 7.3 percent, a 33 percent increase over the previous month. It’s not a fluke: Vacancy rates for Invitation Homes’ initial rental-backed security from last year have spiked to a higher-than-expected 8.3 percent.
Cash-flow vacancy for Invitation Homes 2014-SFR1, a $993.7 million securitization of 6,473 single-family rental properties in ten states, increased in the latest data period, however the net cash flow based on total rent collected remains sufficient to cover the bond obligations. Cash-flow vacancy increased to 7.0%, compared with 5.4% in the previous period. By property count, month-end vacancy rose to 7.3%, compared with 5.5% at the end of the previous month. The delinquency rate was 0.4%.
Here is the rental vacancy rate for the US. It currently stands at 8.3%, just like Invitations Homes vacancy rate.
Hyperbole aside about the 1%, it does point to chink in the armor of the foreclosure recovery. And it gets back to the point that I have been discussing ad nauseum.
In order to have a recovery in housing (both owner and rental), the US needs household income and wage growth higher than it is currently experiencing.
Once again, we have an economy that has NOT recovered from the demolition of household income and average wage growth since 2007. THAT is the real problem.