Had a conference call today with yet another hedge fund that is jumping into the SFR game. Colony Capital has already jumped in. as well as Columbia endowments in Phoneix. And we saw what happened there when they bought 500 houses for 8% net yield. Turned the market.
this company bought 180 homes at foreclosure auctions last 60 days in SoCAL.. And are looking at Atlanta and a few other cash flow markets.
Their target return is 4 to 7% Net Yields… they have 1 billion committed,, I think they took Warren Buffets advice.
couple of young Harvard Grads as in young mid 30’s live in Silicon Valley,,, Both worked at Starwood Capital and Lehman brothers.
Going to be interesting to see how they handle the PM issues that are unique to SFR’s…..
They will hit CA hard… We are looking at providing them with Atlanta inventory,,, with the prices of Atlanta inventory they could dominate the Foreclosure market and with their net Yield requirement they will drive prices up no doubt.. In the 14 major Atlanta counties 200 homes a month is not out of the question especially at purchase prices under 100k… they won’t be trolling for the 10k homes so those who like that market have no fear…
I have them looking at some other markets as well.
They won’t do my TWH model but I certainly would not mind being in front of this freight train and just wholesale inventory to them…
Be interesting to see how this affects the turn key companies that need to represent 15% plus yields to attract investors….
Although all the Spruiekers working the hood have no fear they have no interest in Detroit, Rochester, and other inner city ghetto type markets….
Alex and I may have some fun in Charlotte though… Alex would it not be great to sell to folks looking for 4 to 7% Net yields
I wonder if an OZ investor will jump into US real Estate on the guise of appreciation only and very small net returns….???
jayhinrichs wrote:.. Alex would it not be great to sell to folks looking for 4 to 7% Net yields I wonder if an OZ investor will jump into US real Estate on the guise of appreciation only and very small net returns….???Hey jay already finding that. Just sold 2 deals to a fund in Charlotte that are buying turnkey and looking for 8 % returns. New partner we forming LLC monday. They looked at the houses Monday -closing friday. SO basically anything we buy they will take the over flow. This is been the the hang up for us. They also bring funds to the table. Way cheaper then hong kong . This has been great week since we let go the property management. Kevin and I have done nothing but cruise areas for homes. As of today 85 offers in. Don"t expect to get them all but hoping for 10 to 12 more.
Talk soon
Ok,,
I thats my point I wonder if the OZ investor will engage at under 8% net yields.. I would allow them to buy much nicer houses that have far less Risk… but then they may just choose to stay home and not come out to play at all…
and or they will keep playing in the hood throwing good money after bad,,
be interesting.
JLH
Hedge fund hot money with no where to go. Another bubble, albeit small, in the making.
I would make sure I covered my positions with rock solid agreements and secure payment arrangements. I can see this thing blowing up in very short time with these guys.
They’ll drive the market at break neck speed as others pile in also trying to catch the ride up. This is your perfect boom bust model.
Have fun while it lasts. Just don’t get caught holding the bag.
Freckle wrote:Hedge fund hot money with no where to go. Another bubble, albeit small, in the making.I would make sure I covered my positions with rock solid agreements and secure payment arrangements. I can see this thing blowing up in very short time with these guys.
They’ll drive the market at break neck speed as others pile in also trying to catch the ride up. This is your perfect boom bust model.
Have fun while it lasts. Just don’t get caught holding the bag.
Very well said Freckle! Cheers mate!
Freckle I saw it in my lending business big time,
hege fund come in with 20 to 50 million and basically lose it.. Here I am hard working guy build my company to 30 million,, and they come in and undercut us then lose it all and down the road..
it was tough market when it crashed but you take institutional money and if they walk they just exit, no trying to maximize their loses like I did.. Same theory of whats happening with our banks last 4 years.. cut and run
your right can leed to a bust cycle,,, However this time around they are much smarter,, They will not go into the hood and ghettos like Detroit rochester, most of Ohio, And generally any inner city low value properties.. they are focusing on CA. which is nirvana in the US for REal estate,,, and the better markets and targeting properties at 60 to 150 with 4 to 7% net yields max… This is a good combo they will cream the inventory.. prices will rise.. and it will lead to a recouvery of sorts.. thats my thoughts at least.
The off shore investor had a free run for the last 3 to 4 years.. Unfortunatly a lot of them were very greedy and only wanted 20 to 30% returns and they are the ones you never hear from Save Richard Davies and few others.. Like the one that bought 4 props. from TRR…
Its a fine line here … I will get my 1,000 doors of that I am sure,,, but I am very careful my investors demand it..
JLH
Basically the hedge funds with by and large by properties where no OZ investor will buy.. because Oz investor is still deluted with these returns that are just fanatasy,, and only temporary at best…
These guys will buy the better inventory take the lower yield they are all buying for capital growth and a nice sustained yield,,
we do not have the option of 5 to 7% bank type rates of return… our bank rates our .05 that kind of thing like Japan.
JLH
jayhinrichs wrote:Had a conference call today with yet another hedge fund that is jumping into the SFR game. Colony Capital has already jumped in. as well as Columbia endowments in Phoneix. And we saw what happened there when they bought 500 houses for 8% net yield. Turned the market.One the single investor would have to be careful buying into. With such big inventory you now have the prospect of a manipulated market both at the asset value level and rental yield level. Competition for tenants??
this company bought 180 homes at foreclosure auctions last 60 days in SoCAL.. And are looking at Atlanta and a few other cash flow markets.
Interesting. Cal is an economic disaster on a similar scale to Greece. $15B deficits, 1/3 of all US welfare recipients and a heap of them loosing their benefits shortly. Businesses leaving in droves and my bet is Faceplant will be a dud within months of its IPO.
Their target return is 4 to 7% Net Yields… they have 1 billion committed,,
Better than treasuries for sure. You’ve got around 8 mil in the SFR pipeline. The creams in the top 25% maybe 2mil homes. You would probably have to do some more filtering to weed out the low prospect regions I would think to come up with potential targets. At say 80 – 150k average that’s $160 – 300B total market value. With currently available inventory you probably looking at closer to $500B of value there. That figure will ramp up maybe 5%-10%/yr if HF’s start chasing hard. The problem is where is the price turning point when asset value outstrips a viable yield because I just don’t see rents rising in the current or foreseeable future. In fact they could turn down. Then what? How will the HF’s play it. Repackage into property backed securities. I can see this getting messy.
I think they took Warren Buffets advice.
What do they say “Do as he does not what he says”.
couple of young Harvard Grads as in young mid 30’s live in Silicon Valley,,, Both worked at Starwood Capital and Lehman brothers.
The sort that wouldn’t know their arse from their elbow when it comes to property
Going to be interesting to see how they handle the PM issues that are unique to SFR’s…..
And that’s where I see a whole heap of problems if renters don’t get serviced. Opportunity Jay??
They will hit CA hard… We are looking at providing them with Atlanta inventory,,, with the prices of Atlanta inventory they could dominate the Foreclosure market
To dominate I would imagine you would need a large and experienced team to acquire and process that many deals especially in short period of time. To dominate you would also have to corner the market in some way and I’m not convinced they have the people resources and expertise to do that.
…and with their net Yield requirement they will drive prices up no doubt..
Temporarily probably but not on their own. 200 properties is just a regular if not small development in the scale of things. They would have to be chasing 1000’s I would think to have that sort of impact. And we are only talking SFR inventory are we not? I also imagine they would try to diversify their market or are they not that smart?
In the 14 major Atlanta counties 200 homes a month is not out of the question especially at purchase prices under 100k… they won’t be trolling for the 10k homes so those who like that market have no fear…
Here’s where things could get a bit chaotic. If several players are chasing inventory then the personell and expertise to process volumes just wouldn’t exist and that presents a portfolio quality issue. That then degrades investment return if PM gets out of hand or challenging.
I have them looking at some other markets as well.
They won’t do my TWH model but I certainly would not mind being in front of this freight train and just wholesale inventory to them…
My thoughts are to set up a new company to handle this as a buyers agent and PM business. Possibly spin it off later for a dollar or two
Be interesting to see how this affects the turn key companies that need to represent 15% plus yields to attract investors….
A percentage of investors will adjust by shifting to a mix of yield and asset appreciation as opposed to yield only
I wonder if an OZ investor will jump into US real Estate on the guise of appreciation only and very small net returns….???
There will be some but they would have to be a little sharper to play in this market if HF’s become a dominant player
Freckle as always great comments.
California though with all its trouble is still the number one target for US Captial.. and the cash flow is the lowest in the country.
Its based on history,,, and weather,,, and proximity to mexico.
I just spent last hour writing back and forth with my contact… We are honing in…. I relayed alot of what you said as well.
its a logistic s nightmare buying this volume of homes.. its not like buy 100 apartments units and having to redo them all.
thats why I only buy about 5 to 7 homes a month in any market it keeps me on top of whats happening.
I am thinking reading the Post about TRR and how they have done 300 plus homes in a couple years. yet reno's take 3 month or longer… they are just overwhelmed understaffed and really not very proficiant… So does not really matter what their fee is… if your hosue is sitting vacant for any matter of time its a SITTING duke.. and like what happend to this same client one house got trashed already,,, thats because it sat too long or the neighborhood was not the best.. big volume players will not always buy the best properties… So I have no doubt that some of TRR clients are on the luckyside of thier learning curse its the poor folks that have to pay for their learning curvee or basic lack of knowledge …
OUr teams average a lifetime in each market IE born and raised there,,, and that makes a huge difference when your cherry picking for our product I do not want anything that is going to get trashed… we protect our investors that way..And if there is a problem we pay for it .. never a cost to the investor.
these hedge funds are going to come… will be intersting to see how they make out.
JLHJ
its a logistic s nightmare buying this volume of homes.. its not like buy 100 apartments units and having to redo them all.
You’d definitely have to make sure you have all your ducks in a row but I actually think it’s doable
thats why I only buy about 5 to 7 homes a month in any market it keeps me on top of whats happening.
Certainly much more controllable and less stressful but I reckon you could leverage yours and your teams expertise. Couple that with a few out of work RE agents/PM’s and you could definitely build teams to do the grunt work. Use the intellectual capital within your biz to QA the deals and with management oversight systems and I think you could run with it in relatively quick time.
It’s like the theory the NZ Army runs on. We’re way too small economically to afford large defense force establishments so we run a highly trained core army unit that can expand exponentially if needed. The skill and knowledge is maintained in that core component. I think you have to strategise it like that.
these hedge funds are going to come… will be intersting to see how they make out.
MY guess is they can’t do it without guys like you. For any chance of success they have to tap into credible industry players to have any hope. I think they’re dead in the water otherwise.
Hedge funds come, hedge funds go. Unfortunately, they are in the driver seat to make money and the smaller investors are left holding the bag. Seen it 5 years ago. I met with a hedge fund just yesterday in Weehawken NJ. They are based out of NYC and have a plan ready to go to buy Florida homes at 6-8%. Upside is key and they asked me to sell them on upside. That was the easy part. At the same time, I got a call from an OZ investment group leader. Said they won't consider anything under 13%. Told him I would value an opportunity to earn his business, but not at that price. It's a waste of time for everyone. I'm not a pro forma guy. I'm a realistic guy.
This group wants to buy $50 million in Florida over the next 24 months. Boom and bust model? For them, no… For others, possibly. Funds are everywhere and it is no secret that US homes are great investments today in certain markets. Ya snooze ya lose.
This is my official warning: If you don't accept 8-9% returns on SFR's, you haven't done enough homework on trends, stats, etc… You will be beat out by competition or lied to about your "return". On paper, I can create anything I want, right? If I were an OZ investor, I'd buy for a modest cash flow, and bank on currency and area upside. Guess who reared its ugly head again? Yup, speculation! This time it could be more controlled with the credit markets. But who knows. If you think it's still too much of a risk to bet on real estate, then fly to Vegas and walk to the sportsbook. Lay $10,000 on the odds of the Baltimore Orioles winning the World Series. High risk, high reward
CheevesFinancial | Cushman & Wakefield - Commercial Property SW FL
http://www.CommercialRealEstateVoice.com
Email Me | Phone MeFreckle wrote:Hedge fund hot money with no where to go. Another bubble, albeit small, in the making. I would make sure I covered my positions with rock solid agreements and secure payment arrangements. I can see this thing blowing up in very short time with these guys. They'll drive the market at break neck speed as others pile in also trying to catch the ride up. This is your perfect boom bust model. Have fun while it lasts. Just don't get caught holding the bag.Have to agree with you their ..
CheevesFinancial wrote:Hedge funds come, hedge funds go. Unfortunately, they are in the driver seat to make money and the smaller investors are left holding the bag. Seen it 5 years ago. I met with a hedge fund just yesterday in Weehawken NJ. They are based out of NYC and have a plan ready to go to buy Florida homes at 6-8%. Upside is key and they asked me to sell them on upside. That was the easy part. At the same time, I got a call from an OZ investment group leader. Said they won't consider anything under 13%. Told him I would value an opportunity to earn his business, but not at that price. It's a waste of time for everyone. I'm not a pro forma guy. I'm a realistic guy. This is a common theme for most of us turnkey guys who are realists and honest. Those numbers that most are preaching will not look so good over the lifetime of these deals . Watch and you will see most of the turnkey groups in the USA. Especially the bigger groups out of California are going to be promoting appreciation factor over cash on cash returns. Then I expect the same thought process and information will be passed around Australia and other intentional markets. Again being a realist I don't believe in equity in today's real estate. Appreciation is a double edged sword. Sure, there might be some in higher end markets but for how long? With the lower priced deals I just don't see appreciation going to happen at all. ( Then again these are and should be for cash flow only) Now for the higher end properties, I think we might see appreciation today. What worries me is if the areas hold strong or we see more foreclosures.Drove some really nice areas in Charlotte yesterday ( most homes 4 bed 3 bath or larger nice lots ) we were able to pull a list of 66 homes in some stage of the foreclosure process. What I am seeing in the nicer areas is that it might be a slower trend of foreclosures. Again if these numbers of foreclosures grow in these types of neighborhoods, there goes the values since home owners and investors alike will be buying these properties as discounted prices.
This group wants to buy $50 million in Florida over the next 24 months. Boom and bust model? For them, no… For others, possibly. Funds are everywhere and it is no secret that US homes are great investments today in certain markets. Ya snooze ya lose. More competition than ever, instead of investors pushing up the prices. I hear the word highest and best is now with every offer we make in the $45K to $85k priced homes.
This is my official warning: If you don't accept 8-9% returns on SFR's, you haven't done enough homework on trends, stats, etc… You will be beat out by competition or lied to about your "return". On paper, I can create anything I want, right? If I were an OZ investor, I'd buy for a modest cash flow, and bank on currency and area upside. Guess who reared its ugly head again? Yup, speculation! This time it could be more controlled with the credit markets. But who knows. If you think it's still too much of a risk to bet on real estate, then fly to Vegas and walk to the sportsbook. Lay $10,000 on the odds of the Baltimore Orioles winning the World Series. High risk, high reward
I have to agree with the last line 100 %. I do think there will be some people who do get those super high returns it does happen. With those types of properties, out of every 20 we managed or owned I can only count on one hand the properties which have no headaches. For us, common sense says go where most wont go or understand. The higher end properties 2000 sq ft or better and priced from $105k to $155k .This is going to limit the investors who can. At least that's where we are transitioning to.Freckle wrote:MY guess is they can't do it without guys like you. For any chance of success they have to tap into credible industry players to have any hope. I think they're dead in the water otherwise.Spot on, been seeing some interest in Japan as well, and it does seem like they don't have the time, inclination or are simply not in the gambling mood to be reinventing the wheel when there are people on the ground doing it for reasonable markups – they are more than keen on cooperating with locals with good reputation, and are a pleasure to deal with administrationally, as you are just one of many similar operations they work with, and they've got the process down pat (for better and worse). This isn't just a US trend.
Ziv Nakajima-Magen | Nippon Tradings International (NTI)
http://www.nippontradings.com
Email Me | Phone MeZiv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property
zmagen wrote:Freckle wrote:MY guess is they can't do it without guys like you. For any chance of success they have to tap into credible industry players to have any hope. I think they're dead in the water otherwise.Spot on, been seeing some interest in Japan as well, and it does seem like they don't have the time, inclination or are simply not in the gambling mood to be reinventing the wheel when there are people on the ground doing it for reasonable markups – they are more than keen on cooperating with locals with good reputation, and are a pleasure to deal with administrationally, as you are just one of many similar operations they work with, and they've got the process down pat (for better and worse). This isn't just a US trend.
What worries me if these big guys do come in and buy the 1000S of homes every one is talking about. Lets be honest how fast can they work. With the length of time to fix homes .With this help drive the value down even more with vacant homes.
Then take all the variables like renting the properties, as well as fixing them ( the time involved). I see this as even a bigger mistake selling these in bulk packages if this does occur .At some point the USA Government will support the little investor or smaller investment companies . Who do things ethically and honestly and see there is a need for this type of service.
Seems every one is just looking for the quick fix with out looking at the long term affects this could have.
Alex SC wrote:At some point the USA Government will support the little investor or smaller investment companies . Who do things ethically and honestly and see there is a need for this type of service.
Seems every one is just looking for the quick fix with out looking at the long term affects this could have.That's very true – I'm just wondering why you think the government is any different in that regard?
Ziv Nakajima-Magen | Nippon Tradings International (NTI)
http://www.nippontradings.com
Email Me | Phone MeZiv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property
*sigh*
Actually the biggest reason why this sort of problem exists is due to the “Wall Street” issue.
By and large, most hedge funds or whatever funds do absolutely nothing for their investing clients and burn through money like a hot knife+butter.
Even after the disaster of a financial crisis, nothing has essentially changed. We are still looking at 2/20 managers as the “typical setup” and banks which can lose 2 to 4 billion dollars “hedging” their risks. (Imagine if reducing your risks allows you to lose 4 billion dollars, what would not doing so create? *laugh*)
Alex, in specific response to your concern about how they can destroy markets, your worries are very real and worth spending some time thinking about. You see, hedge funds are not interested in long term.
You have some “legendary hedge fund” manager types who are regarded as heroes when all they did was create doomed products which they then subsequently shorted. Made them tens of billions within a year. What have they actually done for society? nothing except destroyed the value of such a fantastic country…years of value wiped out.
I’m not going to be an angel here to claim that I would totally refuse this lifetime deal. 1 year of tens of billions of returns, why would I care about 50 years down the road? I am set for life…(and several future generations if you were the type who desired a dynasty.)
All they want to do is, within 3 years deliver the best possible returns, create a bang. Star player on MorningStar or
-
Make their billions and subsequently lose it all later. (But it’s not their money they’re rolling in the casino anyway)
It’s worth being concerned about it.
zmagen wrote:Alex SC wrote:At some point the USA Government will support the little investor or smaller investment companies . Who do things ethically and honestly and see there is a need for this type of service.
Seems every one is just looking for the quick fix with out looking at the long term affects this could have.That's very true – I'm just wondering why you think the government is any different in that regard?
Hi Ziv,
Japan may finally be waking up now after 23 years of collapse.
Goldman investing in Japan property.
http://www.bloomberg.com/news/2012-05-25/goldman-said-to-plan-private-reit-to-invest-in-japan-properties.htmlHedge funds/Investment Banks/Hot money has to flow somewhere…
zmagen wrote:Alex SC wrote:At some point the USA Government will support the little investor or smaller investment companies . Who do things ethically and honestly and see there is a need for this type of service.
Seems every one is just looking for the quick fix with out looking at the long term affects this could have.That's very true – I'm just wondering why you think the government is any different in that regard?
Zman Hey Bud How are you? Trust me not disillusioned by any means not happy with our government here. We call it obomanomics and it does NOT WORK…..
Well Memorial weekend here so going to shut down the computer pull out the grill , work in the garden , possible Kayack in the river but NO WORK for a weekend..
Talk soon
javidan wrote:Hi Ziv, Japan may finally be waking up now after 23 years of collapse. Goldman investing in Japan property. Hedge funds/Investment Banks/Hot money has to flow somewhere…It's been flowing for the last three years or so, since last year mostly to central-western Japan, at first from China, then Korean, and now we're seeing the first awakenings of the Anglo economies (which is why not many were aware of this so far).
As I was arguing extensively in this thread – https://www.propertyinvesting.com/forums/property-investing/overseas-deals/4344025 – our feelings on the ground, particularly with the amount of foreign interest evident by global consortiums and the post-Fukushima western migration, is very buyoant. Kyushu, Shikoku, Okinawa – these are all turning out to be very good places to be atm, with the better deals becoming a bit harder to get compared to last year, at least in Fukuoka.
Ziv Nakajima-Magen | Nippon Tradings International (NTI)
http://www.nippontradings.com
Email Me | Phone MeZiv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property
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