The next wave of real estate investment trusts south of the border is likely to be made of distressed properties bought by private-equity investors so cheaply that they can be rented out and still produce good returns despite the high management costs. This asset class does not exist now among REITs, which, in terms of rental properties, has been restricted to apartment buildings.
Since last spring, Toronto-based Tricon Capital Group has accumulated a portfolio of about 700 houses for about US$80-million in various U.S. locations. Blackstone Group LP has spent about US$300-million to buy more than 2,000 foreclosed homes. Beazer Homes USA has created Beazer Pre-Owned Rental Homes Inc., backed by private-equity firm Kohlberg Kravis Roberts & Co.
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| (Photo credit: MapScience) |
“There’s no emotional attachment,” says Mr. Berman with a laugh. “We are buying workforce housing where real people need to live. There are people who owned their houses before and are now forced to rent.”
His company has been purchasing properties one or two at a time in places like California, Arizona and Florida. “Sometimes we are buying on the steps of the courthouse,” said Mr. Berman.
There’s no emotional attachment The math works because his company has been buying out of foreclosure for as low as 40¢ on the dollar compared to where home prices were at the peak of the U.S. housing market in 2006. That’s probably about 10 percentage points better than he would get through normal channels like the Multiple Listing Service, says Mr. Berman.
“The reason we can do it is we are paying cash and we [deliver it] in 24 hours,” said Mr. Berman, adding Tricon is funding the acquisitions from the company’s balance sheet. “You can get financing but it takes time. An investor with cash is the preferred purchaser and can get it at a better price.”
Tricon looks at the investment for income — it has a going in yield of 8% — and capital returns. Both are possible because the collapse of real estate prices has left plenty of margin for error.
“If you are looking to buy a property or vacation home, there is probably no better time to do it,” says Mr. Berman. “The dollar is high and the housing values are low.”
By Garry Marr
Taken from: http://business.financialpost.com/2012/11/10/no-better-time-to-buy-reits-now-invest-in-foreclosed-u-s-homes/
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