Wall Street’s hoping that Main Street investors will want to become landlords. Colony American Homes, which has bought 8,000 homes to rent out, filed to go public and raise as much as $100 million in an initial public offering.
As we wrote in a story in this week’s magazine, renting out single-family homes is evolving from a mom-and-pop enterprise to a more institutional business. Private equity firms have raised more than $10 billion to buy foreclosures and other distressed homes, looking to take advantage of declining homeownership rates and property values that are still 29 percent lower than their 2006 peak. The funds been buying hundreds if not thousands of properties a month, and they’re trying to find other ways to raise money and in some cases exit the business.
This new phase is taking two main forms. First, investors and investment banks are exploring ways to securitize the rental properties—bundling the homes and the monthly rental income they generate into bonds that would be sold to investors. Second, some big landlords are raising money in the open market by becoming publicly traded real estate investment trusts. In December, Silver Bay Realty Trust became the first to go public, and American Residential Properties filed for an IPO earlier this week. American Homes 4 Rent, which was started by Public Storage (PSA) founder Wayne Hughes, has said it also expects to go public soon.
Both securitization and REITs are common in the multifamily apartment building industry. How well they will work for single-family properties isn’t yet clear. Dealing with thousands of single-family homes scattered across neighborhoods and cities poses different challenges—and expenses—from managing scores of properties on one site. “No disrespect, but this is not multifamily,” John Branford of property manager Park Avenue Properties said on a panel at an April rental conference in Miami. “You cannot get in a golf cart and go see 400 units.”