Saturday, June 29, 2013

Signs market maybe flattening out in most major Phoenix Metro Area.YOU DECIDE.

June 29 2013
Payam Raouf 
Designated Broker
Arizona Property Management & Investments
psraouf@aol.com
623-776-5774



Is it a good time to buy, sell or hold off? YOU DECIDE.

For those of you who are in the business day in, day out and watching the price changes, this is almost an old news. In the past 45 days, we have seen a large number of homes for sale on MLS with a substantial price reduction especially in Scottsdale, Chandler, Gilbert, N. Peoria and N. Phoenix. 

From October 2012 to mid May 2013 we have seen an unanticipated price increase as much as 40% in some Phoenix Metro Areas. This was mainly due a combination of things such as:

A)    Lenders not foreclosing. We have managed properties for Major financial institutions including Fannie Mae. Fannie Mae will do almost anything to keep the tenants in place.

B)  Institutional Investors: Almost 70 percent of purchases in the same time period have been done by institutional investors, Private Equity Funds and Forign Investors.

C)  New Buyers: There has been a surge of new buyers, the ones that did a BK, short sale or foreclosure a few years ago and are tired of renting. They re-qualify to buy an home using FHA loan. They are a small percentage and have not had much success competing against big investors but have been putting some crazy offers together with 3% cash back towards escrow fees.

D)  Low interest rate: this needs no explanation.

E) New home builder: Rising the prices to offer bigger incentives to lure buyers in. 

On the contrarily we are seeing the trend changing fast:

A)    Fannie Mae Owned Properties:  Regardless of the low rents, a lot of tenants are moving out of these rentals, mostly due to maintenance issues and lack of TLC. They have been tossed around to several property management companies in less than 3 years and tenants just want out. We have seen over 50 percent of them moving out in the past 90 days. These homes are not in the best condition and won't rent easily. So they are being put back on the market.

B)   Institutional Investors: Carrington Financial Services, a major player in the industry stopped purchasing residential renal properties about 3 weeks ago and a few others have followed suit since. (See the article below). Blackstone and Colony American have slowed down quite a bit, 50 percent of their rental inventory is sitting empty.  As the result, in most Phoenix Metro Areas rents have either stayed the same or even gone down comparing to this time last year.

C)  Canadian Investors: Canadian dollar has been falling steadily and we have seen a lot less of them buying properties down here in Phoenix lately.  I talked to two major title companies in the past two days and they both confirmed that they are more on the selling end of it now. They bough quite a few properties in the past 5 years and once this epidemic of selling spreads through out the market, it can get really ugly. They will all try to exit at once and inventory shoot up through the roof bringing the prices down.

D)  Buyers sitting on the side line: Recently, we have been receiving an unusual amount of rental applicants from applicants with steady jobs, good income and 700 to 800 plus FICO scores! When asked why they are not buying, they say, they are waiting for the market to level off and believe the prices are going to go back down (Perception is a reality). Plus the rents are so low that it beats the total monthly payments with all the expenses and headaches associated with home ownership.

E)   Rate increase: Mortgage rates have gone up by nearly 1% in the past 45 days pushing home buyers already in escrow to take variable loans which in a major way contributed to the whole housing boom and bust. On the contrary belief that a lot of buyers are going to jump on the ban wagon to take advantage of the yet lower rate before it goes any higher, there are still quite a few who are hesitate to take the plunge. Unemployment is still at 7.5% and the ones who are working are barely making the ends meet.

F)    The Musical Chair affect: : As more tenants hop from one rental to another for a better deal, the homeowners who are upside down in their mortgage are no longer able to hang on to these properties. They are throwing in the towel and putting their houses on the market either to short sale it or just getting barely getting from under them as well. We have been getting calls from these home owners to sell their properties once the tenants move out or even with a tenant in place. They seem to be fed up with the costs associated with rental properties and the cost of maintaining them as these homes are getting older needing additional maintenance. On the other hand, institutional investors are offering lower deposits and lower rents just to fill in their vacancies making it more difficult for the smaller investors or these home owners to compete with.

G)   Investors taking some money off the table: We are seeing investors are paying very close attention to these details. In the six months we must have at least sold 50 of these properties and just in the past 30 days we have received more calls from investors wanting to know what their properties are worth and what their options are.  It seems they are getting a bit concerned about the market.  Foreign investors specially the Canadians are getting really jittery.  

Luckily, we live in a county that is economically much more stable comparing to the rest of the world and our people have shown time and again they are more resilient to these market upheavals. However the world is now much more inter-connected than ever before and we need to pay closer attention at not only what is happening around us but about the globe.

It is hard for me to advise you what to do these days. YOU DECIDE.There is not such a thing as the "NORMAL" any more! To get a better insight of what is happening worldwide in the money market, I called a good buddy of mine Stan Serklew,  a seasoned financial Adviser in Scottsdale Arizona. In the past 8 years I have had the pleasure of knowing Stan, he has made some unparalleled predictions that have been right on the money. Seven years ago, in the heat of the real estate market, he told me that government is going end up paying people to stay in these properties, DOW is going to 16000 from 13000 just a few months ago when almost everyone else expected it to collapse, and gold to drop down to $1100 from $1600 an ounce a year ago and may many other solid predictions to motion here. I hope the information here helps you make a better financial decision. Please let me know how we can assist you.

Here is Stan.

Written by Stan Serklew . June 28, 2,013........Resident manager...'Private Equity Advisory Services' in Scottsdale, Az

As an aside, my comments are a disclaimer, as to the numerical processes, which seem to influence an overall residential market based price restructuring, however interest rates, as they influence derivatives option costs have had a nuclear effect in June, as the sudden decline of bond fund prices based on a furious drop in U.S. Treasuries. In the past week, generated a flurry of appearances and commentaries of a goodly number of Fed. Governors, who functioned to hit the brakes on Treasury prices, with a sudden increase and  decrease in yields. The struggle to lower rates has been a source of headaches for money managers, and their clients, who are having difficulty in determining, how effective the Fed's attempts to re balance, an accurate interpretation of Chairman, Bernanke intent in his most recent report on progress of 'recovery' in the U.S. economy, as it relates to the effectiveness of the QE 2,3, bond buying  process......Those of us who were paying attention to the efforts of the PBOC . (Peoples Bank Of China) to act quickly to extinguish the consistent increase in  bank over night lending rates, which reached 15% in the 1st. 5 months of the year, played into the massive selling  by institutions, as well as retail investors  of bond funds, approximately 44 billion this month, adding to an already jittery market, the sudden rate increases of U.S. credit instruments...........The battle continues, between the Central Banks of the world, and the bond vigilanties which appear with shark like attacks, in world wide debt markets., no doubt bear significant observation, as Dallas Fed Gov. Stanley Fisher commented this past week, with a somewhat stern admonition, that winning over the Fed is impossible......however, as we endure a slow recovery in the housing market, which is dependent on our domestic mortgage capabilities, there is no doubt, that the so called 'Perfect Storm'  has subsided in recent days...........And now comes the steepest decline in the price of Gold, in any period since 1920.. closing at 1,201. per oz......to days close wit an Aug. 13 futures in the 1,100  handle ......The traditional interpretation is the war on inflation domestically has been won, however, as everyone with consistency is grappling with this 'Phenomenon' referred to as the 'New Normal',  with sudden changes in pricing of all hard goods that are 'marked to the market' priced on the up and downside, and we certainly have to be alert to changes in price structure in the residential housing market......In short, buyers, and sellers have little margin of time to 'think it over'...The Caveat is 'act quickly'..for the retail buyer........More to come with vigor, as we progress to make U.S. housing, the  New Gold Standard  in our domestic market, for all who dwell in our Dynamic Country.
Please forward all your questions to psraouf@aol.com. Thank you and Happy investing. 

Monday, June 3, 2013

Carrington Stops Buying U.S. Rentals as Blackstone Adding

Arizona Property Management & Investments
"Best in Property Management in Phoenix" 2011/2012
Payam Raouf
Designated Broker
(888) 777-6664 ext 114



Carrington Stops Buying U.S. Rentals as Blackstone Adding



Hedge fund manager Bruce Rose was among the first investors to coax institutional money into the mom and pop business of single-family home rentals, raising $450 million last year from Oaktree Capital Group LLC. (OAK)
Now, with house prices climbing at the fastest pace in seven years and investors swamping the rental market, Rose says it no longer makes sense to be a buyer.

“We just don’t see the returns there that are adequate to incentivize us to continue to invest,” Rose, 55, chief executive officer of Carrington Holding Co. LLC, said in an interview at his Aliso Viejo, California office. “There’s a lot of -- bluntly -- stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible.”
Carrington, which started in 2003 as a mortgage investment fund and has managed almost 25,000 rental homes for itself and others, has been joined by hundreds of institutional and international investors buying single-family homes after prices plunged following the housing crash. The firms are building a new institutional real estate asset class from the 14 million leased single-family residences that are worth an estimated $2.8 trillion, according to Goldman Sachs Group Inc.
Even as demand for rentals rises amid a falling homeownership rate, yields are declining and companies formed to buy the homes that have gone public haven’t yet been profitable.

Rising Prices 

It’s also getting harder to buy properties cheaply, with purchase prices rising 11 percent in April from a year earlier to a median $192,800, according to the National Association of Realtors. Asking prices for rents rose just 2.4 percent in the 12-month period, according to Trulia Inc. (TRLA)

Funds are buying property now, including homes sold by Carrington, for rents that yield 6 percent to 8 percent a year, before costs such as insurance, taxes and vacancies, according to Rose. Carrington’s model called for mid-single digit net returns on annual rents on an unlevered basis, according to Rose. While returns would vary by market, they would generally be in the mid- to high teens over the duration of the holding period, with the profit from home price appreciation.
“We selected our capital for this trade, sourced from a level that’s just too expensive for what the market has morphed into,” Rose said. Oaktree, the Los Angeles-based investment firm founded by Howard Marks, declined to comment, said Alyssa Linn, a spokeswoman at Sard Verbinnen & Co.

Nonperforming Loans

Instead of acquiring rental homes, Carrington is buying nonperforming loans, including about $4 billion in 2012. While that’s a potential source of rental properties if the owners can’t pay the mortgages, Rose’s preferred outcome is to get the loans performing again by offering a modification that keeps the current owner in the house, he said.
Carrington also is buying mortgage servicing rights and expanding a loan origination business for borrowers who can’t qualify for prime loans because of low credit scores. Rose expects to issue securities backed by these loans as soon as the end of this year, he said.
“It’s all about control,” Rose said. “We learned the better loans would be created for us to invest in if they originated off of our own platform and then boarded onto our own servicer, where we could control the performance longer term rather than leaving it in someone else’s hands.”

DEA Pilot

That desire for control is reflected in Rose’s life outside the office. He got a pilot’s license at age 17 and worked as a commercial aviator, including a stint flying for the U.S. Drug Enforcement Agency, before moving to Wall Street. He still enjoys taking the helm of Carrington’s two Dassault Falcon jets when he visits the company’s properties around the country.
Another investor that has stopped putting money into rental homes is Och-Ziff Capital Management Group LLC (OZM), a $31 billion hedge fund managed by Daniel Och, which cut its stake last year in 643 Capital Management LLC, a single-family rental operator with almost 2,000 homes in California, Florida, Nevada and Texas. Gregor Watson, managing partner at San Francisco-based 643 Capital, declined to comment on the Och-Ziff relationship. In general, the single-family rental business has matured to a lower-risk, lower-return investment as more funds get a track record, he said.
“It’s gone from an opportunistic business to a value-add one in terms of returns,” Watson said in a telephone interview. “We and other groups have proved you can manage these at scale.”

Blackstone Buying

Blackstone Group LP (BX), the largest investor in single-family rentals, has spent $4.5 billion to amass more than 26,000 homes and continues to buy, according to Eric Elder, a spokesman for Invitation Homes, the rental housing division of the world’s largest private equity firm.
“We’re continuing to purchase homes where they fit into our business plan,” Elder said.
Blackstone’s net yields on its occupied houses are about 6 percent to 6.5 percent, Jonathan Gray, the firm’s global head of real estate, said during a May 3 conference call with investors. That’s before using leverage from a $2.1 billion line of credit the private-equity giant arranged in March from a lending syndicate headed by Deutsche Bank AG. (DBK)
While about 85 percent of Blackstone’s renovated homes were leased, Gray said, “we’ve got an awful lot of homes to continue renovating.”

Losses Reported

Companies that release financial results for single-family rental investments have reported losses as they acquired homes faster than they can renovate and find tenants.
Colony American Homes Inc (0773189D)., a division of Thomas Barrack Jr.’s Colony Capital LLC, has found tenants for only 51 percent of the 9,931 homes it bought for $1.4 billion, according to a filing yesterday with the U.S. Securities and Exchange Commission.
American Residential Properties Inc. (ARPI), a Scottsdale, Arizona-based real estate investment trust, and Silver Bay Realty Trust Inc., a New York-based single-family REIT, both reported losses in the quarter ending March 31. Owen Blicksilver, a spokesman for Colony Capital, declined to comment. Silver Bay CEO David Miller was unavailable to comment, according to Tricia Ross, a spokeswoman at Financial Profiles Inc. American Residential CEO Steve Schmitz and President Laurie Hawkes didn’t reply to e-mails seeking comment.
Silver Bay declined 2.6 percent today in New York to $18.24 and has lost 4.4 percent this month. The company sold shares to the public in December for $18.50.

Defaults Soaring

Rose worked in the mortgage department at Salomon Brothers from 1991 until 2003, after it had been acquired by Citigroup Inc. He started Carrington in Greenwich, Connecticut, as a securitizer of mortgages originated by subprime lenders such as New Century Financial Corp., Fremont General Corp. and H&R Block Inc.’s Option One Mortgage Corp.
In 2007, as defaults began to soar and the lenders were collapsing, Rose sought to gain more control over the trusts that admistered the loans. He paid $188 million for the servicing business of then-bankrupt New Century’s mortgages.
When Carrington foreclosed on the homes in its portfolio, Rose calculated it often made more sense to keep the houses as cash-flowing rentals rather than sell them into a weak market. By 2009, Carrington had expanded from being an asset manager to a loan servicer and property manager, overseeing its own holdings plus more than 3,000 rental homes that Fannie Mae had repossessed.

Housing Exposure

With home prices about one-third below peak at the time, Rose saw the opportunity to buy and manage thousands of properties as a way to make money on rents while betting on a long-term real estate recovery.
“This was the purest way to get pure housing exposure,” he said. “You can’t do it through banks or builders or mortgage companies or anyone else.”
Rose initially found it hard to find backers.
“There wasn’t a domestic investor at the time that had the foresight to see what the value of the product was,” he said. “Universally we got back: Oooh, housing. Really scary. It’ll never go back up.”
By the time Oaktree invested with Carrington, the housing market had begun to turn around in markets like Phoenix and California, where funds had started to buy thousands of residences for rentals.
While Rose isn’t buying now, Carrington’s 3,000 employees’ experience in renovation and rental management are a resource available to other investors entering the market, Chief Operating Officer David Gordon said during an interview.

‘Gold Rush’

“All the people who made money during the gold rush in California, they were selling the buckets and shovels,” Gordon said. “I think there is gold in them there hills, but you’re going to have to dig deep. And hopefully you’re going to need more than one shovel.”
Carrington may start buying rental homes again when other large investors decide to sell after learning they can’t make returns that justify the prices they paid, Rose said.
“We’ll sit back in the weeds for a while and wait for a couple of blowups,” he said. “There’ll be a point in time when we’ll be happy to get back into the market at levels that make more sense.”