Blackstone is panicing

[carlsbadworker]

Their realtors just told them: buy now or be priced out forever.

http://www.bloomberg.com/news/2013-01-09/blackstone-steps-up-home-buying-as-prices-jump-mortgages.html

[The-Shoveler]

Sounds like a clever marketing ploy (you know like Goldman saying Oil going to 200 a barrel).
But I have always said that sooner or later you will run out of cheaper to buy that it cost to build foreclosures so I think we are getting close to that point.

[davelj]

I don’t think I’m going out on a limb in predicting that regardless of what prices Blackstone pays for the real estate that goes into its funds… Blackstone will do VERY well for Blackstone. Blackstone’s fund investors… probably not so much.

Caveat emptor.

[outtamojo]

Kind of a riskless trade for them. Piggyback gov. support for housing; should housing fall further- more gov. support on the way; if housing goes into sh@t tank gov. bails out BX so they don’t unload all their houses at once.

[EconProf]

I think Blackstone is going to make a lot of money, and deserves to. Buying foreclosures or short sales or fixers is traditionally an entrepreneurial mom and pop venture, done a few at a time. But this is inefficient because there is a big learning curve involved, as can be attested by anyone who has tried it. Blackstone has discovered that the process is subject to economies of scale for a big company that does hundreds or thousands of houses at once. They can study the market to know how much to pay, can bid cash to idiot lenders anxious to unload, can analyze the property’s needs and send in their tried and trusted workers to quickly execute, then market the property for sale or rent. With this mass production approach they add the most value with the least cost and downtime and extract the most profit. We may resent their success because they are capitalizing on the distressed housing market, but like sharks cleaning up carcasses in the ocean, their profit-seeking is improving neighborhoods and serving society. Adam Smith would approve!

[carlsbadworker]

Yes, Blackstone is not a dummy but there are mom-and-pop investors who think otherwise. I don’t think this is because of they “add the most value with the least cost and downtime and extract the most profit.” Many long-time mom-and-pop investors can do that as well and they know the local market better. But I think this is because Blackstone seems to be buying a segment of rental property market that is not the traditional “rental property” material. Like the other thread on “nightmare renting to people in a low income area”, mom-and-pop investors seem to focus on the traditional aspects of valuing a property, such as cap rate, gross rent multiplier, etc.
From what I read, the hedge funds have slightly different focus to avoid competition. They focus on bigger property (3000sqft rather than 1200 sqft), somewhat nicer property, and perhaps in somewhat nicer neighborhood. They are buying those houses that mom-and-pop investors would say “there is no way I can make the number work” but at the same time, those are also below replacement costs or 50%+ off properties. So clearly, hedge funds are thinking about their exit strategy few years from now when new constructions will start again and housing market again is healthy, while mom-and-pop investors typically don’t. They will be happy to labor hard to earn the yearly rents.
Maybe when everything settled down few years from now and we look back in history, they may be able to teach us something. Of course, mom-and-pop investors probably still lack the ability to analyze the potential appreciation yield, the economics of scale to execute, and have different investment motive.

But then again, there is also the possibility that the hedge funds really lack the experience of buying rental properties so they may be foolish in the end. I don’t bet on it though.

[paramount]

[quote=EconProf]Adam Smith would approve![/quote]

I seriously doubt it, these crooks are using Ben’s free money to further their serfdom agenda.

[CA renter]

[quote=paramount][quote=EconProf]Adam Smith would approve![/quote]

I seriously doubt it, these crooks are using Ben’s free money to further their serfdom agenda.[/quote]

At the very least, GSE funding (or any govt-backed funding) should NOT be made available to hedge funds.

God forbid regular families should ever get the same types of deals that these “investors” are getting. Joe Sixpack is always the mule at the bottom of the economic pyramid who’s holding up all the weight of the fat cat capitalists at the top.

………..

It would be funny if interest rates rise, making the low-ish cap rates of today look pitiful…at the same time, making the monthly carrying costs at the higher rates unaffordable for true end-users/buyer, which would cause prices to plummet (IMHO). Then, the flood of rentals being hoarded by all of these investment funds could hit the market, putting a damper on rent increases and, possibly, causing rents to fall in addition to causing prices to fall as they try to unload.

Will this be the “foreclosure tsunami” all the RE bears have been waiting for all these years?

Of course, there’s the very real chance that these investors are underestimating the potential problems with renting to a bunch of people who were foreclosed on by those in the financial sector, leading to a sort of resentment against their new landlords if their identity is ever found out. I will LMAO if these funds lose their a$$es on these deals. One can only hope.

[bearishgurl]

[quote=carlsbadworker]Yes, Blackstone is not a dummy but there are mom-and-pop investors who think otherwise. I don’t think this is because of they “add the most value with the least cost and downtime and extract the most profit.” Many long-time mom-and-pop investors can do that as well and they know the local market better. But I think this is because Blackstone seems to be buying a segment of rental property market that is not the traditional “rental property” material. Like the other thread on “nightmare renting to people in a low income area”, mom-and-pop investors seem to focus on the traditional aspects of valuing a property, such as cap rate, gross rent multiplier, etc.
From what I read, the hedge funds have slightly different focus to avoid competition. They focus on bigger property (3000sqft rather than 1200 sqft), somewhat nicer property, and perhaps in somewhat nicer neighborhood. They are buying those houses that mom-and-pop investors would say “there is no way I can make the number work” but at the same time, those are also below replacement costs or 50%+ off properties. So clearly, hedge funds are thinking about their exit strategy few years from now when new constructions will start again and housing market again is healthy, while mom-and-pop investors typically don’t. They will be happy to labor hard to earn the yearly rents.
Maybe when everything settled down few years from now and we look back in history, they may be able to teach us something. Of course, mom-and-pop investors probably still lack the ability to analyze the potential appreciation yield, the economics of scale to execute, and have different investment motive.

But then again, there is also the possibility that the hedge funds really lack the experience of buying rental properties so they may be foolish in the end. I don’t bet on it though.[/quote]

I just looked at their site and their short “buy to let” video. They are only buying SFR’s (1-4 units?) and plan on renting them all.

Home

They state they will spend an average of 10% of each SFR’s cost on rehab, using the local tradepeople of the area. That is a lot of money, IMHO, and will employ competent tradespeople who haven’t held steady jobs in years. They claim their main investors will be “pensioners.”

I think their success will lie in VERY professional property mgmt. Due to VERY low MIR’s today, their main audience will undoubtedly be the BK’d, the credit-challenged, recently foreclosed upon and recent short sellers. This could prove to be a hard audience to pander to if they haven’t learned their lessons and altered their spending habits which got them into the situation they are now in. As Blackstone starts working in these distressed markets and starts leasing, I’d like to see the amounts of individual damage and security deposits they take and profiles of actual tenants. And, of course, their PM companies in every jurisdiction need an efficient local UD law firm on retainer.

As a soon-to-be “pensioner,” I’d like to see their initial returns in this endeavor. I agree that what they plan to do will eventually lift all (housing) boats. There are a lot of people like me who believe in the “buy and hold” strategy but carpal tunnel and other joint issues preclude us from working on our own “flipper project” or “rehab for rental” project.

Not sure if they have entered into any CA distressed markets yet or even plan to.

If “Fannie” is the main seller to Blackstone, this thread belongs within my earlier thread (below) but I was apparently asleep at the switch :=]

http://piggington.com/as_predicted_frannie_is_beginning_to_sells_blocks_of_assets_in_b

Thanks for sharing, carlsbadworker!

[moneymaker]

I don’t know anything about Blackstone. Was at a new building lately though and had to ask who was in charge, well seems hardly anyone there spoke english. so so much for money going to hard working skilled Americans.

[bearishgurl]

[quote=moneymaker]I don’t know anything about Blackstone. Was at a new building lately though and had to ask who was in charge, well seems hardly anyone there spoke english. so so much for money going to hard working skilled Americans.[/quote]

That’s here in SD, MM. I don’t believe Blackstone has entered the CA market yet or if they even plan to.

Other states (much further from the int’l border) don’t have a never ending supply of workers who can live cheaper across the border and work cheaper, like SD does.

Their video was showing “Americans” doing the rehab work.

Just because the local worksite you visited didn’t have English-speaking workers, that doesn’t mean their foreman can’t speak English, nor does it mean they don’t have a legal right to work here. CA gen’l and subcontractors are “supposed” to file an I-9 on all their workers at the time of hire.

[moneymaker]

Agreed, I suspect due to the temporary nature of the construction business a lot of these workers are “not employees”. Legal? Hard to say since I’m not in a position to demand proof, I suspect however that many of them were not.

[Jazzman]

12 million homes? We’ll all be buying directly from the Blackstones of this world soon; your home, turn key investments, REITs etc. When foreclosures dry up they’ll be buying retail, and then sell on leases only. Things are looking up.

[equalizer]

[quote=EconProf]I think Blackstone is going to make a lot of money, and deserves to. Buying foreclosures or short sales or fixers is traditionally an entrepreneurial mom and pop venture, done a few at a time. But this is inefficient because there is a big learning curve involved, as can be attested by anyone who has tried it. Blackstone has discovered that the process is subject to economies of scale for a big company that does hundreds or thousands of houses at once. They can study the market to know how much to pay, can bid cash to idiot lenders anxious to unload, can analyze the property’s needs and send in their tried and trusted workers to quickly execute, then market the property for sale or rent. With this mass production approach they add the most value with the least cost and downtime and extract the most profit. We may resent their success because they are capitalizing on the distressed housing market, but like sharks cleaning up carcasses in the ocean, their profit-seeking is improving neighborhoods and serving society. Adam Smith would approve![/quote]
A Blackrock investor would say that they are doing what needs to be done in 0% rate environment. It is a very interesting asset class, possibly better than lumber. If they are too successful, they may outbid first time buyers with 100% cash and possibly overpay creating resentment from people who are losing out of the American dream?

[livinincali]

[quote=equalizer]
A Blackrock investor would say that they are doing what needs to be done in 0% rate environment. It is a very interesting asset class, possibly better than lumber. If they are too successful, they may outbid first time buyers with 100% cash and possibly overpay creating resentment from people who are losing out of the American dream?[/quote]

The question is how long does it take for a CA style legislator to pass even more tenant protections.I have a feeling that it might really suck to be a landlord in the state if a hedge fund rental group does anything that is viewed as “unfair”.

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