Mega Landlords Are Snapping Up Zillow
Homes Before the Public Can See Them
Hot housing market drives alliance with real estate tech
firms as landlords flush with cash tap iBuyers to find properties
By Patrick Clark
May 21, 2021, 7:00 PM GMT+1
Wall Street firms scouring the frenzied U.S. housing market
are tapping a new source of properties that regular buyers can’t reach.
Cerberus Capital Management and related entities bought more
than 200 houses in the first quarter through next-generation home flippers
called iBuyers, including 138 from Opendoor Technologies Inc. The pipeline to
Wall Street from Silicon Valley often means the homes never hit the open
market.
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Other single-family landlords, flush with cash to bet on the
demand for suburban rentals, are applying the same strategy. Their purchases
come as many Americans can’t afford to buy houses -- a side effect of the
pandemic-driven real estate rush that’s sparked bidding wars for a shortage of
available properties.
“At a moment when we have once-in-a-generation low inventory, we have for-profit companies
making the decision to withhold houses from the market,” said Mike DelPrete, a
real estate tech strategist who follows the iBuyers. “As a society, are we cool
with that?”
Cerberus, which manages $53 billion in assets, operates more
than 24,000 rentals through a portfolio company called FirstKey Homes. The firm
recently borrowed $2.5 billion against a portion of the property portfolio at a
fixed rate of 1.99%, according to Kroll Bond Rating Agency.
In addition to the homes it bought from Opendoor in the
first quarter, Cerberus purchased 52 from Zillow
Group Inc., the listing site that started flipping homes in 2018, and 28
from Offerpad, according to analytics firm PropertyRadar. The data, which was
compiled from public records, may not be complete.
“Homes purchased through iBuyers are a minimal 1% of our
entire portfolio of homes,” a representative for FirstKey said in a statement.
IBuyers have
sprung up in recent years seeking to profit by streamlining the notoriously
complex process of selling a home. They use software to estimate values and
make rapid offers to homeowners who express interest in selling their
properties. When an owner accepts, the iBuyers make light repairs and put
the home back on the market, seeking to profit by charging convenience fees.
Read more: Opendoor Faces an Expensive Path to Profitability
in Real Estate
Cerberus isn’t the only large landlord turning to the tech
companies. Invitation Homes Inc., the largest single-family landlord, tapped
iBuyers for more than 5% of the 700 homes it purchased in the first quarter,
Chief Executive Officer Dallas Tanner said on a recent conference call. Tricon
Residential Inc. and Donald Mullen’s Pretium also bought homes through this
emerging channel.
For the iBuyers, selling to Wall Street can offer better
economics and a leg up in the race to get bigger. It limits expenses, cutting
out commissions to real estate agents, and lets the tech firms move homes
quickly and benefit from economies of scale. But in a tight housing market,
there’s increasing competition for the entry-level properties sought by
first-time buyers and landlords alike.
“We’re in housing shortage, and whatever inventory
institutional landlords are gobbling up means there’s less available to
first-time homebuyers,” said Lawrence Yun, chief economist at the National
Association of Realtors. “In that sense, the investors are an obstacle to the
everyday buyer.”
Overall, the homes landlords bought through iBuyers were a
tiny fraction of U.S. home sales during the first quarter. But for the tech
companies, they add up. At Opendoor, which went public last year through a
merger with one of Chamath Palihapitiya’s blank-check companies, entities that
bought multiple homes accounted for 21% of the company’s first-quarter sales.
For Offerpad, the number was 16%, according to PropertyRadar. For Zillow, it
was 9%.
Read more: Zillow’s Price Estimates Are Now Cash Offers in
Homebuying Push
Representatives for Opendoor and Offerpad declined to
comment. A representative for Zillow said that the company adjusts its
strategies for selling homes to move inventory quickly and reduce the fees it
charges sellers.
“These strategies include selling homes to all types of
buyers, including individual families, non-profit organizations and investors,”
Zillow said in a statement.
Institutional landlords are rushing to buy homes now, as the
work-from-anywhere era accelerates the millennial generation’s shift to the
suburbs. With backyards and extra space in high demand, investors have been
betting that Americans who lack the cash for down payments will gravitate to
single-family rentals.
A parade of investors, including JPMorgan Chase & Co.’s
asset-management arm, Nuveen Real Estate and Brookfield Asset Management Inc.
have committed billions in new capital to single-family rentals since the
pandemic began.
But raising money to buy homes is proving easier than
finding houses to acquire. In some cases, investors are partnering with
homebuilders to develop houses that won’t be ready for tenants for months -- or
even years.
“The supply of single-family homes remains well short of
growing demand,” said Tanner, the Invitation Homes CEO, on the recent
conference call. “There is so much capital coming into the space that
everything is pretty competitive.”
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