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.
Get started
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.”
Unidentified flying objects have been interacting with military ships with alarming frequency. Congress
is right to take the issue seriously.
By Editorial Board
May 19, 2021, 1:00 PM GMT+1
It almost certainly isn’t aliens. And yet …
In recent years, videos have been making the rounds online
of strange aircraft surrounding U.S. naval vessels, often in ostensibly secure
waters. The unidentified craft make surprising (and sometimes outlandish)
maneuvers. In some cases, they seem to emit no exhaust, display no obvious
means of propulsion, and evade American pilots with apparent ease. In one 2015 incident, which the Pentagon has
confirmed, fighter pilots scrambled from the USS Theodore Roosevelt strike
group express bafflement as a fleet of mysterious objects seems to surround
them.
No one can quite say what they are. In military-speak,
they’re known as Unidentified Aerial
Phenomena, or UAPs (the fancy new term for UFOs). Some have speculated that
they’re drones, optical illusions, software glitches, weather events or other
prosaic occurrences. To other (more vocal) constituencies, they are undoubtedly
of otherworldly origin.
Whatever they are, the government is taking them seriously.
In December, Congress directed the intelligence community to submit a
comprehensive report on the incidents (due in June). This month, the Pentagon’s
inspector general announced a probe “to determine the extent to which the DoD
has taken actions regarding Unidentified Aerial Phenomena.” Several members of
Congress have vowed to get to the bottom of things.
They should indeed. A number of reports — including an
investigation by The Drive, based on Freedom of Information Act requests —
suggest that UAPs are interacting with U.S. ships with alarming frequency. Such
incidents are potential national-security threats, yet pilots seem reluctant to
discuss them for fear of being stigmatized. As a report from the Senate
intelligence committee warned last year, there’s also no standardized way to
report or analyze them. The committee called for the creation of an interagency
process, involving representatives from across the military and intelligence
agencies.
Such an approach — formal, bureaucratic, extraordinarily
dull — is precisely what’s needed. It should lend sobriety and legitimacy to
any findings, while ensuring that various parts of the government are sharing
information. If necessary, it should also allow for a coordinated response. The
question is how transparent it should be. Obviously, if the aircraft in question
are part of a classified U.S. military project, then secrecy is imperative.
Likewise, if they belong to an adversary, security issues arise. But being
cautious is very different from being overtly misleading — and, unfortunately,
there’s precedent for the latter approach.
Starting in the
1950s, as UFO sightings began proliferating across the U.S., both the Air
Force and the CIA tried to conceal their interest in the matter. They did so in
part because they feared that the Soviets were trying to sow hysteria and
wanted to calm the public, but they also knew that many of the sightings were
of top-secret U.S. spy planes. In the end, such deceptions were
counterproductive. Nobody believed the denials, the government lost
credibility, and the hysteria only grew. An internal CIA review in 1997 found
that the agency’s duplicity only added “to a growing sense of public distrust.”
That skepticism is one reason why, in the decades since,
garden-variety military incidents and mishaps have repeatedly been transformed
into galactic conspiracies believed by a shockingly high percentage of Americans.
With trust in the U.S. government once again at a low ebb, misleading the
public with regard to UAPs would be a serious mistake.
And what if, this time, it really is aliens? Well, that
would also be worthy of sober investigation. It could even justify some new
interagency processes.
To contact the senior editor responsible for Bloomberg
Opinion’s editorials: David Shipley at davidshipley@bloomberg.net .
Wait, California Has Lower Middle-Class Taxes Than Texas?
Ultra-high earners can cut their tax bills a lot by moving
from a high-tax state to a low-tax one. For most other people, that's not at
all a sure thing.
By Justin Fox
May 19, 2021, 6:00 AM EDT
A tale of two tax rates.
A lot of people left California for other states over the
past decade, with 912,038 more going than coming from 2010 to 2019, according
to Census Bureau population estimates. Who was leaving? Mainly those without
college degrees and with middle to lower incomes, the Public Policy
Institute of California calculated recently on the basis of a different Census
Bureau data set. Here’s the breakdown by income:
I would not take this to mean that all is well with the
state. An exodus of people with lower and middle incomes is not a good thing,
and the net inflow of those with higher incomes slowed over the course of the
decade. The data also don’t cover the upheavals of 2020, and there’s
statistical evidence that out-migration from California accelerated last year
as well as lots of anecdotal evidence that high-income people were among the
emigrants.
These statistics are relevant, though, to any discussion of
why so many people have been leaving California. Taxes often dominate public
discussions of such trends, thanks in part to the unrelenting efforts of
Republican policy entrepreneurs Arthur Laffer and Stephen Moore, whose 14th
annual, mostly tax-based economic competitiveness report for the conservative
American Legislative Exchange Council is out this month. But it’s awfully hard
to argue that taxes have been the main thing driving the California exodus,
given that (1) it has been concentrated among the less affluent, (2) their No.
1 destination has been Texas, according to 2010-2018 Internal Revenue Service
data that I tallied up early last year and (3) lower-income and
middle-income people face higher effective tax rates in Texas than in
California.
Middle-class taxes are lower in Nevada, the No. 2
beneficiary of net migration from the Golden State, but for a household at the
2019 California median income of $75,235 the 1.8 percentage point difference in
effective tax rate adds up to $1,354 whereas the difference in average
annual rent for an apartment or house between metropolitan Los Angeles and
metro Las Vegas is $6,336, according to Apartment List’s April
estimates.
For those in the top 1% of the income distribution, who in
California in 2018 had adjusted gross incomes that started at $680,687 and
averaged $2.2 million, the story is much different.
These estimates are from 2018 because that’s the last time
the Institute on Taxation and Economic Policy, a left-leaning Washington think
tank, updated its distributional analysis of state and local tax systems, a
massive “microsimulation” exercise that “relies on one of the largest databases
of tax returns and supplementary data in existence, encompassing close to three
quarters of a million records.” The right-leaning Tax Foundation recently
published its estimates of the 2019 state and local tax burden, and one can get
a rough accounting of the 2020 take by comparing the Bureau of Economic
Analysis’s state personal-income and disposable-personal-income numbers, but
neither of those gives any indication of how taxes vary by income group. So
ITEP’s 2018 estimates are what we’ve got to work with.
California’s tax
rates for high earners were the country’s highest in 2018, and the tax-rate
differences between states were bigger for high earners than for middle-income
taxpayers. Also, because the incomes involved are higher, the tax bills are
bigger relative to real estate costs. The 9.4 percentage point difference
in top-earner tax rates between California and income-tax-free Washington, the
No. 3 recipient of California net migration and one that welcomed people with
higher incomes than those headed to Texas and Nevada, works out to $210,443 for
the average California one-percenter, while the difference in annual rents for
a four-bedroom dwelling (not the perfect metric, I realize, but it’ll do)
between metro San Francisco and metro Seattle is $7,320.
Changes in the last few years have made such tax differences
loom even larger for those with very high incomes. The 2017 Tax Cuts and Jobs
Act increased interstate variance in affluent people’s tax bills because those
who face high state and local taxes are no longer able to deduct most of them
for federal tax purposes. Then the sudden move to remote work during the
pandemic brought a sharp rise in residential mobility among high-income
workers, according to an Apartment List survey. Most of these moves were
within the same metropolitan area, but the barriers to moving across state
lines to avoid taxes have definitely been lowered. Also, New York has just
passed a law that will likely make its top earners the country’s highest-taxed,
surpassing California.
There are good reasons for states to care about the tax
incentives facing one-percenters. In
California and New York, they account for close to half of state personal
income tax revenue. If too many leave, state finances could be hammered. A
recent study by economists Joshua Rauh of the Stanford Graduate School of
Business and Ryan Shyu of Amazon.com found a “substantial one-time out-migration
response” to a 2012 increase in the state’s top income tax rate, concentrated
among those making more than $2 million a year, and concluded that the
departures had eroded at least 60% of the revenue gains from the tax hike.
Rauh and Shyu also speculated that the impact of the changes in relative tax
rates among states brought on by the 2017 federal tax law would prove even
larger.
On the other hand, income tax revenue kept rising briskly
through the pandemic in both California and New York. California now has a
$75.7 billion budget surplus! An exodus of the rich may turn out to be a big
problem, but it isn’t one just yet. Meanwhile, these two states have been bleeding
poor and middle-class residents for years. High real estate costs are one big
reason. Another is what Massachusetts Institute of Technology economist
David Autor calls “The Faltering
Escalator of Urban Opportunity”: Wages used to be much higher in big cities
(California and New York are home to the biggest) regardless of where you were
on the education or income spectrum, even adjusted for the higher cost of
living. This is still quite true for
college-educated workers, Autor has documented, but not for those with some
college or less.
I don’t want to completely discount the role of taxes in the
migration patterns of the non-wealthy. There’s a swath of 13 states stretching
from Kansas to Connecticut with effective state and local tax rates on middle
incomes of 10% or more and net domestic out-migration from 2010 to 2019. 1 Then
again, two of the four states with the lowest middle-income tax rates, Alaska
and Wyoming, experienced out-migration as well. Taxes matter, especially at the high end, but for most people other
things matter more.
Kansas, Nebraska, Iowa, Wisconsin, Illinois, Indiana,
Kentucky, Ohio, Pennsylvania, Maryland, New Jersey, New York and Connecticut.
This column does not necessarily reflect the opinion of the
editorial board or Bloomberg LP and its owners.
And finally, here's what Tracy's interested in today
One of the many things we're learning this year is that much of the modern global economy is still built on archaic rules of sea travel and that economics doesn't do a particularly good job of forecasting or incorporating the vagaries of transport costs. In other words there's a mismatch between the the old-fashioned structures that dictate how the world actually works and our modern impression of it. Take for instance the Ever Given, the container ship that got stuck in the Suez Canal back in March.
On the most recent episode of Odd Lots, we spoke to Ryan Peterson, the CEO of logistics company Flexport, which has customers who still have a total of more than 40 containers stuck on the Ever Given. He describes how even though the ship is now unstuck, it's probably going to take months to sort out the situation, and there are clients who potentially could end up paying billions of dollars to settle the matter — all because of a historical quirk in the way shipping works:
"One of the little known facts about global shipping is under ancient maritime law the company shipping the cargo, not the owner of the ship, but the company that [owns the cargo], the products on there, is liable when something like this happens ... That's a law called general average, it's a fascinating Wikipedia article. And the reason that that's true, it goes back I think hundreds of years, the reason that that was true is that in a storm or an accident at sea, you don't want people to stop and argue about whose cargo they're going to throw overboard ... You don't want these arguments. You don't want the mariners worrying about that. Just throw the cargo over and save the ship is the principle. And you'll sort it out later. And the way you sort it out later is everybody agrees that we will share equally in whoever's cargo got thrown over — the rest of the people will make them whole, and that's a principle called general average. And the ocean carrier under the law has the right to invoke general average and declare it and say, okay. And so that's what Evergreen has done. They have declared general average, which means all of the customers who have cargo on that ship are going to be liable for the damages that come through. And it could be billions of dollars in aggregate and it gets divided, pro-rata based on the commercial invoice value of your goods."
He also points to the sometimes arbitrary way in which ships are loaded — with space being awarded on the basis of personal relationships — as another example of potential inefficiencies (or as Peterson put it: "Traditionally it works by who has the best relationship with this person, probably named Lars sitting in Copenhagen or something, who is making these decisions.”) Anyway, the whole thing is worth a listen to get a sense of how much supply shortages are currently compounding supply changes, but also to understand that a big part of the modern “globalized” economy is still connected to practices that can be traced back hundreds of years.
You can follow Tracy Alloway on Twitter at @tracyalloway.
This image, from November 2017, shows derelict buildings at the Chatterley Whitfield Colliery in Staffordshire, England.
Alan Tunnicliffe Photography | Moment | Getty Images
KEY POINTS
The U.K. has a long association with coal mining, but the industry’s decline has hit many communities hard.
In the years ahead, abandoned mines could prove to be a useful source of geothermal energy.
This image, from November 2017, shows derelict buildings at the Chatterley Whitfield Colliery in Staffordshire, England.
Alan Tunnicliffe Photography | Moment | Getty Images
A project aiming to harness geothermal energy from disused, flooded coal mines in the northeast of England took another step forward this week after it was given planning permission for an initial testing phase.
In an announcement Monday, South Tyneside Council said the development would “draw geothermal energy from abandoned flooded mines in the former Hebburn Colliery.” The Hebburn Colliery opened in the late 18th century and shut down in 1932.
The idea is that the project will heat buildings owned by the council, which is working on the project alongside Durham University and the U.K.’s Coal Authority.
The U.K.’s abandoned mines could well prove to be a useful source of geothermal energy — which the U.S. Department of Energy describes as a “vital, clean energy resource” — in the years ahead.
As the Coal Authority notes, “when underground mines are abandoned, the pumps that kept them dry are often switched off and the mines fill with water.”
Geological processes heat the water, it adds, and the temperature stays stable throughout the year.
In Hebburn, two wells are to be drilled to take water from the mines, with tests undertaken to make sure the project is viable.
If all goes to plan, a water source heat pump will eventually be used to “extract the heat from the minewater before it is compressed to a much higher temperature.” Drilling works and well construction are slated to be finished by the fall.
“Work will start on the testing phase of this project without delay,” Tracey Dixon, who is the leader of South Tyneside Council, said in a statement issued Monday.
Dixon added that the project, which will benefit from more than £3.9 million ($5.48 million) in funding via the European Regional Development Fund, was “expected to deliver a reduction of 319 tonnes of carbon emissions a year.”
The U.K. has a long association with coal mining, but the industry’s decline has hit many communities hard and is an emotive subject.
In recent times, plans for a new coal mine in Cumbria, in the northwest of England, have generated a great deal of debate, not least because the U.K. is set to host the COP26 climate change summit later this year. The project’s fate is still to be determined.
The Hebburn Colliery project is one of several in the U.K. looking to introduce new energy technologies to old coal mining sites.
The project to update the Morrison Busty depot in County Durham will center around the construction of a 3 megawatt solar farm that will power the site’s operations.
In addition, electric vehicle charging points will be integrated into the development’s design, while a battery storage system will also be built.
The depot, which is located in the village of Annfield Plain, traces its roots back to the 1920s, when it was known as the Morrison Busty Colliery. The coal mine closed down in 1973.
Stellantis CEO says suppliers failed to protect carmakers from chip shortage.
New Beginnings
The sprawling Mercedes-Benz factory complex in Sindelfingen, Germany, has been churning out cars for more than a century. This week, it started a new chapter.
Mercedes kicked off serial production of the EQS — the all-electric sibling of the company’s flagship S-Class sedan — on Wednesday, a milestone for the brand that’s taken its time to embrace EVs. My colleagues Christoph Rauwald and Hannah Elliott have already written extensively about the car’s market-leading battery range and luxurious interior. It’s the first Mercedes model built with dedicated EV underpinnings. But the sea change isn’t just happening under the hood — it’s also playing out on the plant floor.
Mercedes EQS quality checks at Factory 56.
Source: Daimler AG
The EQS, like the S-Class, is built at Factory 56, a shiny new $900 million facility that’s supposed to be the blueprint for how Mercedes will make cars in the future. Its key feature is flexibility. Some 400 driverless transport systems whizz car parts along routes that can be set remotely, removing the need for a fixed assembly line. The site can be tweaked to make new combustion-engine or battery-powered models within just a few days.
Mercedes parent Daimler has a lot riding on Factory 56. The inventor of the combustion-engine automobile is trying to reinvent how it makes cars as it electrifies its portfolio. The flexible assembly model will be rolled out to wherever Mercedes makes EVs — be it at home in Sindelfingen or in the U.S. and China. Over the past century, Mercedes has perfected combustion-engine manufacturing. The question now is, can the company do it again assembling EVs?
The EQS battery pack assembly line at Factory 56.
Source: Daimler AG
Germany’s carmakers are often criticized for being too slow to change. A bias for stability and knack for tinkering (shrinking gaps in body panels is still among the top goals in Sindelfingen and Wolfsburg) proved ill-suited for a period of rapid transformation. Remember the now-obsolete push by BMW — mimicked less boldly by Volkswagen and Daimler — to make cars using carbon fiber? They poured millions of euros into the material that ultimately proved too costly and cumbersome to work with. Shortly after the carbon-fiber craze started, Tesla introduced the Model S, featuring wireless software updates and a 17-inch touchscreen display. While German auto engineers tinkered with a complex material that didn’t really pan out, the California upstart was inventing the iPhone on wheels.
Things have changed. VW, BMW and Daimler are stepping up efforts to unseat Tesla as the global leader in electric cars. With a digital dashboard stretching from one side mirror to the other, Mercedes is positioning the EQS as the answer to the Model S that has so far eluded Germany’s auto industry.
Bolstered by strong demand for the S-Class and promising initial feedback for the EQS, which can be ordered from mid-June, Mercedes plans to add a third shift of workers and boost manufacturing capacity for the two models. The carmaker has already succeeded in raising production efficiency of the S-Class by 25% at Factory 56, and it hopes to do something similar with the EQS.
“This is our lighthouse factory,” said Joerg Burzer, who is responsible for production at Mercedes. “We see it as absolutely competitive.”
