A relatively new real estate trend is playing out in some markets in the Southeast, and even across the country: some institutional investors are snapping up groups of distressed residential properties and turning them into rental units. Staff writer Charles Davidson writes about this new "asset class" in "A Cottage Industry Goes Big," featured in the second-quarter edition of EconSouth.
Institutional investors such as private-equity firms Blackstone LLC and Colony Financial Inc. are purchasing homes at foreclosure auctions, from individual sellers, and through financial institutions, government sponsored entities such as Fannie Mae and Freddie Mac, and investors. By and large, the target markets for these purchases share two traits: they have plenty of foreclosed properties available, and they offer favorable long-term economic prospects. Along with cities in the West and Southwest, several southeastern markets—including Atlanta, Miami, Orlando, and Tampa—fit the bill, Davidson notes.
This business model is fast becoming a powerful force in some markets, although such sales still make up a relatively small share of the total housing market. And the longer-term implications are still unclear. For instance, how will an influx of renters affect neighborhood stability? And how will the eventual sale of those properties affect local housing markets? It will likely be several years before those questions have answers. Despite all the uncertainties, "some things are clear," Davidson notes, including "the startling speed at which this new business is coalescing."
To read more about this business strategy and its impact on southeastern housing markets, see the full article in the latest issue of EconSouth, available in print and online.