Colony American Postpones Stock Sale as REIT Shares FallJohn Gittelsohn
Tom Barrack’s Colony American Homes Inc., which owns more than 12,000 U.S. rental houses, postponed an initial stock offering as shares of real estate investment trusts decline, according to data compiled by Bloomberg.
The Scottsdale, Arizona-based landlord, which began buying foreclosed homes and converting them into rentals last year, had planned to raise as much as $260 million in an IPO this week.
REIT shares have fallen 11 percent since May 21, more than the 3.6 percent drop in the Standard & Poor’s 500 Index. Expectations that the Federal Reserve could end its quantitative-easing programs amid a strengthening U.S. economy have made yield-oriented equity investments such as REITs relatively less attractive.
“The public market is very mercenary,” Jim Sullivan, managing director at Newport Beach, California-based Green Street Advisors Inc., said today in an interview at the National Association of Real Estate Investment Trusts conference in Chicago. “It’s a great reminder that you’ve got to price it right and structure it right to get investors to give you the benefit of the doubt.”
Colony American owned or had options on 12,247 homes with an estimated cost basis of $1.8 billion as of May 17 in states including Arizona, California, Colorado, Florida and Texas, it said in a regulatory filing last month.
The company would have joined Silver Bay Realty Trust Corp. and American Residential Properties Inc. in going public as a REIT in the burgeoning rental-houses asset class. American Homes 4 Rent, a Malibu, California-based single family rental company headed by Public Storage founder Wayne Hughes, yesterday filed plans to raise $1.25 billion as a REIT.
Colony American declined to comment, according to Caroline Luz, a spokeswoman for the company at Owen Blicksilver Public Relations Inc.
There are 14 million for-lease homes in the country with an average price of $200,000, valuing the industry at about $2.8 trillion, according to an April report by Goldman Sachs Group Inc. Silver Bay and American Residential are trading below their IPO prices.
“We are not yet certain if the flood of institutional capital into this market will leave investors shedding tears of joy or tears of sorrow,” Henry Coffey Jr., an analyst with Sterne Agee & Leach Inc., wrote in a June 3 report on single-family REITs. “It is fair to say that the prospects for additional home-price appreciation are relatively high. Whether this turns into higher rental rates remains to be seen.”
Home-rental firms are helping to increase prices in areas hit hard by the real estate crash by draining the market of inventory as low mortgage rates and improving employment fuel demand from individual buyers. There were 2.16 million homes available for sale last month, the fewest for any April since 2001, according to the National Association of Realtors.
Home prices rose 12.1 percent in the 12 months through April, the biggest gain since February 2006, said CoreLogic Inc., an Irvine, California-based data provider. Rents on apartments and single-family homes gained 2.4 percent in the 12 months through April, according to a May 7 report by Trulia Inc.
The stock prices of single-family-home REITs have fallen since their IPOs even as homebuilders and apartment landlords have risen amid a housing-market recovery. Silver Bay, a Minnetonka, Minnesota-based REIT formed by Two Harbors Investment Corp., went public at $18.50 on Dec. 13 and today closed at $17.65. American Residential Properties, a Scottsdale, Arizona-based investment fund with more than 2,500 rental homes, sold shares at $21 on May 8 and closed at $18.59 today.
Colony American Homes, part of Barrack’s Colony Capital LLC, paid an average of $163,000 per house, including purchase price and estimated upfront renovations, according to a filing last month. It spent about $250 million a month from February through April.