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New players have big piece of housing pie

Where prices fell hardest, wealthy firms see opportunity; critics, profiteering.

March 17, 2013|Alejandro Lazo

The big investors are creating "auction fever" and driving up prices, said Nick Halaris, co-founder of AH Capital, a company that renovates and resells foreclosed homes in South Los Angeles. He remains skeptical that these firms will be able to manage these rentals effectively. Costs of regular maintenance and serving tenants add up.

"I think it's crazy, their strategy, especially in L.A. or major markets, because we have managed portfolios of single-family rentals in different places," Halaris said. "The expense ratios are out of control, so I am not sure these plans are going to pan out."

Consumer and community advocates are also skeptical that big financial players will make the best neighborhood stewards. Invitation Homes has amassed 80 homes in just two ZIP Codes of South Los Angeles -- 90047 and 90044 -- buying in both middle-class and low-income areas.

An Invitation Homes for-rent sign recently popped up next to Albert Ramos' West 69th Street duplex, where he lives with his wife and two children. Ramos has been a homeowner for three years. He would prefer to have another homeowner move into the orange stucco house next door.

"The people that rent it might be here for just a few months, then leave," Ramos, 31, mused as he puffed on a cigarette on his front steps.

About a mile and a half away south on Normandie Avenue, prospective renter Brenda Browning, 59, stood in the yard of another Invitation Homes property for rent, peering through its windows.

"I love everything about it -- the hardwood floors, the landscaping -- it's just beautiful," Browning said. "And it's in, what seems to be at least, a quiet neighborhood. I live on 105th and Figueroa right now, and I wouldn't wish that on anybody. I hate it."

Vulnerable South Los Angeles neighborhoods do not need more investors looking to buy low and sell high, said Earl Ofari Hutchinson, founder of the Urban Policy Roundtable.

"It's easy pickings down there -- you had a lot of foreclosures over the last years, people are economically challenged and have lost their homes, and you can get properties on the dime at fire-sale prices," Hutchinson said. "Does that really benefit the area? Essentially, no."

Executives at Invitation Homes counter that they can boost neighborhood fortunes and make a profit at the same time. Beisswanger, a former home builder, envisions hundreds of neighborhoods across the country dotted with his Dodger Blue signs.

On a recent tour of some of the company's San Fernando Valley homes, Beisswanger strode through a single-story Canoga Park property, quickly assessing its bones and making note of what might have to go: the popcorn ceiling, dated walls, flooring, kitchen countertops, appliances, doors, light fixtures, bathroom vanities, maybe even the electrical system.

An illegal apartment built out of the home's garage revealed kitchen walls smeared with grease, an undersized bathroom door and a moldy skylight.

"It is every code violation," Beisswanger said with disdain. "We will provide a nice house for a family to rent; we are providing jobs; and we are potentially fixing dangerous situations."

Whether these big investors will achieve the scale they need to make their businesses work remains an open question. Rick Sharga, executive vice president for Carrington Mortgage Holdings -- which is partnering with private equity firm Oaktree to purchase homes for rent -- said his company has taken a bit of a "breather" and is waiting for prices to "settle down a little bit."

One of the biggest issues is that the government and big financial institutions have not sold off their foreclosed homes in large portfolios, as had been expected after Fannie Mae concluded its pilot sales. That has meant that investment firms have had to compete at local foreclosure auctions and on the open market -- making those properties increasingly expensive.

At a recent auction in front of the San Bernardino courthouse, Roger Zapata, an individual investor, said he lost out to a bigger player.

"They are going really, really high.... The investors are getting pretty desperate," he said. "I don't know how long this is going to last. It's a big question mark."


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