“In the banking sector there are 6.6 million single family homes that are in the butcher factory”
Colony Spends $1.5 Billion on Homes as Next REIT Boom: Mortgages
Colony Capital LLC founder Tom Barrack is betting $1.5 billion that single-family homes caught in the U.S. “butcher factory” of foreclosures are the basis for a new class of real estate investment.
Colony, Blackstone (BX) Group LP, Starwood Capital Group LLC and Waypoint Real Estate Group LLC are among private equity funds paying cash for foreclosed homes to turn into rentals with an expectation that institutional financing will develop to enable them to boost their returns.
“In the banking sector there are 6.6 million single family homes that are in the butcher factory,” Barrack, who founded Colony in 1991 to buy distressed real estate, said at a Bloomberg Link Dealmakers Summit in New York yesterday. “It’s going to be another asset class.”
Demand for single-family rentals has grown as 4.5 million homes have been repossessed since January 2007, according to RealtyTrac Inc., and tightened lending standards and limited for-sale inventory keep first-time buyers out of the market. The asset class will expand just as real estate investment trusts for apartments have exploded since that industry’s birth in the early 1990s, Barrack said. While all REITs had a market value of just $5.6 billion in 1990, multifamily trusts are now a $71 billion industry.
“In 1990 we were buying multifamily loans, there were no multifamily REITs,” said Barrack, whose Santa Monica, California-based firm has $25 billion in assets under management. “You want to know how this is going to do, look at the multifamily REIT situation.”