Hedge Funds

Last week was not a good week for the new REO to Rental REITS that are fast replacing hedge funds as the most popular way to buy and manage vast numbers of former foreclosures.

American Homes-4-Rent reported it had lost $14 million on revenues of $18.1 million, most of which came from acquisition of another fund. This loss comes on the heels of its IPO, which raised 44 percent less than the $1.25 billion the company hoped for.

So then American Public Media’s Marketplace called me for an interview to answer the question, “Why are half of homes sold for cash?” which led to a discussion of the value of single family rentals and buyers who pay cash and hedge funds were at the top of the list, though small investors buy many more houses.

From what I had seen lately, hedge funds and REITs have been doing a number or wise things. Last May Carrington Holdings announced it was going to take a break from buying, probably good news for their investors who don’t want to see returns on investment shrink in appreciating markets. Funds and REITs seem to be finding new, untapped markets where prices are lower and distressed properties more abundant.

Yet there is one charge that seems to stick: that the big dogs are bidding up home prices as part of a larger pan to drive away competition and drive up the value of properties they own. (See Are Hedge Funds Blowing Bubbles?

Last June the New York Times accused Blackstone and other investors of contributing to price increases that are not sustainable and driving first-time buyers from the market. I thought Blackstone’s reply was effective:

First, Blackstone is not buying houses in sufficient numbers to …read more