As more companies convert foreclosures to rentals, publicly traded single-family home REITs may be on the way
CHICAGO (MarketWatch)—Investing in single-family homes is becoming big business and a driving force stabilizing home values in communities across the country, as institutional investors see value in foreclosures that can have new life as rental homes.
Soon, average investors may be able to get in the act, too—without having to buy a house themselves.
That’s because some in the industry are more than kicking around the idea of creating publicly traded real-estate investment trusts, or REITs, for single-family rental homes.
“To date, there has been no publicly traded vehicle in which any investor can participate in the housing recovery. Our goal is to remedy that,” said Stephen G. Schmitz, chairman and chief executive of American Residential Properties, a real-estate investment company that acquires, renovates, leases and manages single-family properties. Today, there’s really no vehicle for an investor to play in the space “unless he wants to get a pickup truck and tool belt and wants to buy two or three houses.”
Currently, American Residential Properties, based in Scottsdale, Ariz., is operating as a private REIT, after selling $224 million of stock, mainly to institutional investors, at the beginning of the year. But in the future, there’s a good chance the REIT may be heading for an initial public offering.
“It is something that we’re actively considering,” he said.
Others are as well.
“Investment bankers in this space clearly believe that it’s inevitable to see multiple publicly traded REITs,” said Colin Wiel, managing director of Waypoint Homes, based in Oakland, Calif., another company in the business of acquiring and renting out single-family homes that is considering the possibility of becoming a publicly traded REIT.
Right now, publicly traded REITs include those based on apartment properties as well as retail, office and industrial space.
It is possible that new single-family publicly traded REITs could be on the scene early next year, said Rick Sharga, executive vice president at Carrington Mortgage Holdings in Santa Ana, Calif., which also invests in single-family homes and turns them into rentals.
But when the opportunity arrives, investors should exercise caution.
REITs are fairly conservative products by nature because the underlying assets include a large number of properties, Sharga said. At the same time, you can’t compare existing residential REITs based on apartment buildings to ones based on single-family homes, he said. It’s still unclear if the renters in these properties will stay long-term, and it’s hard to anticipate how the properties will perform over the long haul.
“There’s no track record on these properties,” Sharga said.
Budding industryIt’s a new concept, buying single-family properties and renting them out on a large scale. In the past, it was mainly individuals who owned and leased out these properties.
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