Housing-News-Report-November-2017

NAMED THE NATION’S BEST NEWSLETTER BY NAREE

NOVEMBER 2017 VOL 11 ISSUE 11

of Single Family Rentals The Rising ‘Big Middle’

SPOTL IGHT NEVADA RENO LEADS NEVADA HOUSING REBOUND WHILE LAS VEGAS LAGS P20  MY TAKE BY RUSSELL BARTLETT ENVIRONMENTAL HEALTH SCIENTIST CALIFORNIA DEPARTMENT OF PUBLIC HEALTH

BIG DATA SANDBOX

P19 

AMERICA’S ZOMBIE ZIPS

P14 

DATA IN ACTION

P26 

WHERE TO FIND CASH-FLOWING RENTALS

Contents

FEATURED ARTICLE

The rapidly maturing single family rental market is moving toward the middle – in myriad ways. While the biggest segment of the SFR market, both in terms of number of properties and number of investors, is still by far the mom-and-pop investor who owns one or two single family rentals, that segment is shrinking. Meanwhile the SFR market share of investors owning between 6 and 10 rental homes increased 65 percent from February to November 2017. P1 THE RISING ‘BIG MIDDLE’ OF SINGLE FAMILY RENTALS

P14 MY TAKE: OVERCOMING THE SUPERFUND STIGMA

A home’s location can be its best advantage. It can also pose a big problem. Homes located near manmade environmental hazardous waste sites can have their property values decrease. In this article, one state health department asks how it can understand this complex issue better. How does stigma affect property and health and what can be done for homeowners located near a Superfund site?

Out of the 342,034 U.S. residential properties in the foreclosure process, 14,312 of them are vacant “zombies”, accounting for 4.18 percent. While the number of vacant foreclosures has plummeted over the last few years, there are still 40 zip codes where at least one in every five homes is a zombie. Are you living amongst these “Zombie” homes? P19 BIG DATA SANDBOX: AMERICA’S ZOMBIE ZIPS

P14

P20 NEVADA HOUSING SPOTLIGHT

The epicenter of a rebounding Nevada real estate market has shifted Northwest. Median home prices in Reno have skyrocketed 160 percent since bottoming out in January 2012 and are now just 4 percent below their prerecession peak in July 2005 while median home prices in Las Vegas have posted an impressive 135 percent increase since January 2012, but are still 20 percent below their pre-recession peak in June 2006. An ideal rental property is the opposite of a money pit; it produces income for its owner. To help prospective landlords identify places where they can still find cash- flowing rental properties, we broke out the big data. We looked at 8,841 U.S. zip codes to create this interactive heat map showing where the best rental property cash flowing opportunities are available across the country. P26 DATA IN ACTION: WHERE TO FIND CASH-FLOWING RENTALS

P20

P26

HOUSINGNEWS REPORT

LEAD ARTICLE

The Rising ‘Big Middle’ of Single Family Rentals

BY DAREN BLOMQUIST, EXECUTIVE EDITOR

The rapidly maturing single family rental market is moving toward the middle – in myriad ways. “We finally landed on the experienced private investor as the way to refer to people who are serious, not rookies, and they are active as hell right now,” said Greg Rand, CEO of OwnAmerica, an exchange for occupied rental properties

that is targeting investors who own anywhere from five to 1,000 properties in an effort to get those investors to register their property portfolios with the service for a free “strategy profile”. Rand said 2,500 of these investors, whom he refers to as “the big middle,” have already signed up for a strategy profile after just a few months of marketing.

“They are a force that is much bigger than the institutional,” he said. “More than 200,000 investors that own about half a trillion dollars of real estate 15 properties at a time.” An analysis of non-owner occupied (rental) single family homes nationwide confirms Rand’s hypothesis that the middle tiers of single family rental

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THE RISING ‘BIG MIDDLE’ OF SINGLE FAMILY RENTALS

SFR MARKET BY INVESTOR PORTFOL IO SIZE: FEB 2017

SFR MARKET BY INVESTOR PORTFOL IO SIZE: NOV 2017

100+

10%

16%

11 TO 100

14%

23%

6 TO 10

12%

3 TO 5

79%

67%

1 TO 2

Migrating to Middle America Rand also noted the mid-tier investors his company targets are more willing than the mammoth institutional investors to move to smaller secondary and tertiary markets — many of them further from the coasts and deeper into middle America. “One of the things we’re excited about is the secondary and tertiary markets that are getting some action. … What was being done in Nashville, they’re doing in Chattanooga instead. Oklahoma City instead of Dallas,” he said, noting that this migration is happening in different ways. “Some of them are acquiring and growing. Some of them are liquidating and re- capitalizing and looking for a new play. They are not riding off into the sunset.” Five years after acquiring a portfolio of 150 single family rentals mostly in Florida, Jamie Nahon is one of those mid-tier investors looking to move to middle America.

“We finally landed on the experienced private investor as the way to refer to people who are serious, not rookies, and they are active as hell right now. … More than 200,000 investors that own about half a trillion dollars of real estate 15 properties at a time.”

GREG RAND CEO, OWNAMERICA

(SFR) investors have been the most active in 2017.

accounting for 79 percent of the overall SFR market in February 2017 — a 15 percent decline in market share. Meanwhile, segments of the market represented by investors owning more than two rental homes have all increased from February to November, led by investors owning between 6 and 10 rental homes (market share up 65 percent) and followed by investors owning 100 or more rental homes (market share up 59 percent); and investors owning 11 to 100 rental homes (market share up 58 percent).

While the biggest segment of the SFR market, both in terms of number of properties and number of investors, is still by far the mom-and-pop investor who owns one or two single family rentals, that segment is shrinking. Mom-and-pop investors owning 1 or 2 properties accounted for more than 13.1 million of the nearly 19.5 million single family rentals nationwide (67 percent) in November 2017, but that was down from 15.2 million homes

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“We love the SFR rental model and the opportunity that exists in the market, and we’re no longer able to find any good yields in Florida,” said Nahon, president of Eagle River Homes. “In order to grow that business we have to go elsewhere. “We are looking from the Midwest through to some Northeast markets,” Nahon continued. “All the usual suspect markets throughout Pennsylvania, 0hio, into Illinois, maybe Indiana. Places where you can still find good blue collar houses where the demographics are showing opportunity for rental appreciation, asset appreciation. Really where the rent-cost matrix still shows a yield better than what you can get in the fixed income markets. That still has that unique SFR, HPA (home price appreciation) profile which was what existed in Florida five years ago.” While Nahon is moving toward middle America from the east coast, Jeff Pintar is moving toward middle America

markets ripe for profitable SFR acquisition, working to identify trusted local partners already operating in those markets. Some of the markets the company is targeting for future acquisitions include Houston, Indianapolis, Nashville, and Columbus, Ohio. “We’ve been able to find the right local partners … they are us in that local market. That is really what has given us comfort in investing capital in local markets that we haven’t

from the west coast when it comes to acquiring single family rentals.

“From a rental standpoint, the yields are really attractive from what we are starting to see,” said Pintar, founding partner and CEO at Pintar Investment Company, which began investing in residential real estate in 2009 and has built up a rental portfolio of about 400 properties in Southern California and Nevada.

Now Pintar has been looking further toward the nation’s interior to identify

“We love the SFR rental model and the opportunity that exists in the market, and we’re no longer able to find any good yields in Florida. In order to grow that business we have to go elsewhere.”

JAMIE NAHON PRESIDENT, EAGLE RIVER HOMES

MARKETS WITH HIGHEST SHARE OF INVESTORS BUYING 10 OR MORE PROPERTIES: Q3 2017

9.3%

MEMPHIS, TN-MS-AR BIRMINGHAM-HOOVER, AL CLARKSVILLE, TN-KY CHARLOTTE-CONCORD-GASTONIA, NC-SC KILLEEN-TEMPLE, TX JACKSONVILLE, FL EL PASO, TX ATLANTA-SANDY SPRINGS-ROSWELL, GA NASHVILLE-DAVIDSON-MURFREESBORO-FRANKLIN, TN OMAHA-COUNCIL BLUFFS, NE-IA

8.3%

6.9%

6.6%

6.1%

5.8%

5.3%

5.2%

5.1%

5.0%

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purchasing at least 10 properties a year in the third quarter of 2017.

HIGHEST SHARE OF PROPERTIES PER INVESTOR

2.27

traditionally been in,” said Pintar, noting that the company carefully studies demographics such as population growth, job growth and income growth to determine which markets to target. “We’re negotiating a couple different partnership agreements now. I think by the end of this year, we anticipate probably investing three to four million in a new market.” DETROIT-WARREN-LIVONIA, MI OKLAHOMA CITY, OK COLUMBUS, OH ATLANTA-SANDY SPRINGS-MARIETTA, GA LAS VEGAS-PARADISE, NV NASHVILLE-DAVIDSON-MURFREESBORO, TN BALTIMORE-TOWSON, MD DALLAS-FORT WORTH-ARLINGTON, TX KANSAS CITY, MO-KS ST. LOUIS, MO-IL CHARLOTTE-GASTONIA-CONCORD, NC-SC

Rise of the Repeat SFR Buyer That trend toward buying rentals in middle America is trickling down to smaller, retail investors as well, according to Gary Beasley, co-founder and CEO at Roofstock, an online marketplace for single family rentals. “We definitely see retail investors seem to be attracted to yield and as a consequence we’ve moved into some additional Midwest markets that seem to have a lot of interest for folks,” said Beasley, noting the company recently launched SFR listings in Cleveland and already has Memphis and some other low-cost markets with high rental yields. Meanwhile, some of the massive institutional investors that gobbled up thousands of single family rentals in the past five years are starting to cull their portfolios, providing more inventory for the mid-tier and smaller investors looking for yield.

2.15

2.08

2.00

1.93

1.89

1.87

1.86

1.83 1.83

1.81

into the middle of the country. Markets with the highest share of Q3 2017 single family home and condo sales to investors purchasing at least 10 properties per year were Memphis, Tennessee (9.3 percent); Birmingham, Alabama (8.3 percent); Clarksville, Tennessee (6.9 percent); Charlotte, North Carolina (6.6 percent); and Killeen, Texas (6.1 percent), according to the ATTOM Data Solutions Q3 2017 Home Sales Report. Nationwide, 2.7 percent of all home sales were to investors

Nahon and Pintar are not alone in migrating to smaller markets further

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LOWEST SHARE OF INVESTMENT HOMES WITH LOAN

BIRMINGHAM-HOOVER, AL

24%

KNOXVILLE, TN

24%

PITTSBURGH, PA

25%

CHARLOTTE-CONCORD-GASTONIA, NC-SC

29%

30%

INDIANAPOLIS-CARMEL-ANDERSON, IN

31%

ATLANTA-SANDY SPRINGS-ROSWELL, GA

31%

DETROIT-WARREN-DEARBORN, MI

32%

RICHMOND, VA

32%

KANSAS CITY, MO-KS

“A lot of the larger players tend to be going more up market. They are interested in inventory that is a little more expensive. Less yield focused,” said Beasley, noting that Roofstock posts some portfolios on its site in addition to individual properties. “As a consequence a lot of those guys are selling some of their less expensive homes which are appealing to some of the guys who are more interested in yields.” Thanks in part to a nascent industry of SFR-focused products and services such as Roofstock, smaller and middle- tier investors are becoming more willing to buy outside their backyard, according to Beasley. “I see continued interest in people buying outside of where they live. … Ninety percent of our buyers are buying out of market.

“We’re also seeing a lot of repeat purchasers. Oftentimes the second or third house they just do without even talking to us. People get comfortable with the asset class, they get used to buying remotely and they feel like they can buy on their own.”

GARY BEASLEY CO-FOUNDER AND CEO, ROOFSTOCK

the typical pattern is for the investor to engage directly with the Roofstock team on the first purchase but then employ a more do-it-yourself strategy on subsequent purchases. “Oftentimes the second or third house they just do without even talking to us. People get comfortable with the asset class, they get used to buying remotely and they feel like they can buy on their own.” Financing Options Need to Mature Financing single family rental purchases and portfolios remains one area that

has not adequately matured, according to Dennis Cisterna, CEO at Investability, a services platform targeting middle market and institutional investors in the single family residential sector. “The part of the puzzle where we are kind of lagging behind other real estate assets is the capital markets … this needs to look and feel like multi-family,” Cisterna said. “The goals of the single family rental industry are no different than that of the multi-family industry …

“We’re also seeing a lot of repeat purchasers,” added Beasley, noting that

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there need to be programs to offer good long-term financing for operators in this space — longer-term loan products that are priced much more reasonably.” Cisterna noted that long-term financing for an apartment building is readily available with a 4.0 to 4.25 percent interest rate and a 70 to 75 percent loan-to-value ratio while a long-term loan for a single family rental property will run closer to 5.5 percent interest with a maximum LTV of 70 percent.

largest owner of single family rentals with about 50,000 nationwide, disclosed the Fannie Mae financing arrangement on the heels of its initial public offering announcement in January. Freddie Mac entered the fray in July with its own announcement of $1 billion in financing for single family rental operators. Although full details of the Freddie Mac plan have yet to be disclosed, the announcement came couched in affordable housing-heavy messaging, possibly a response to criticism of the Fannie Mae financing deal as a boon for Wall Street at the expense of taxpayers. “Freddie Mac wants to provide tens of millions of dollars in financing to midsize landlords, not to giants like Invitation Homes, which operates nearly 50,000 rental homes in 13 markets,”

“There is just a disconnect between what the pricing of the debt is and what the actual risk of the asset class is,” Cisterna said. “Once Fannie and Freddie support this to a greater degree you’ll see more pricing compression overall in the industry.” Fannie Mae provided the first sign that the government is willing to support SFR financing with its backing of a 10-year $1 billion mortgage to Invitation Homes earlier this year. Invitation Homes, the

“There need to be programs to offer good long-term financing for operators in this space — longer-term loan products that are priced much more reasonably.”

DENNIS CISTERNA CEO, INVESTABILITY

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GROWING SHARE OF FINANCED FL IPS

TOTAL FLIPS

FINANCED FLIPS

FINANCED SHARE OF FLIPS (COUNT)

35.8%

35.3%

238,372

229,999

163,338

146,033

31.8%

84,112

81,107

58,483

46,436

2014

2015

2016

JAN-SEPT 2017

Frustration with SFR Financing Both Pintar and Nahon — two prime examples of the middle-market operators Cisterna refers to — expressed some level of frustration with the financing options available to them. “We couldn’t get financing until a couple of years into the game, and then we had to deal with community banks,” said Nahon. “Wall Street acknowledgement of our asset class is allowing us to borrow with more favorable terms.” Pintar said about a year ago he began looking into options for getting his company’s portfolio of about 400 rental properties into long-term debt, ideally a 10-year term with a 30-year amortization so the loan term could be fixed anywhere from 10 to 30 years.

according to a New York Times article on the announcement. “In all, Freddie Mac could provide up to $1 billion in financing or loan guarantees to smaller firms that buy single-family homes and operate them as what it considers affordable-housing rentals, a company official said in an interview. Some nonprofit housing groups might also be eligible for financing.” Cisterna expressed optimism that the Freddie Mac financing will go much further than the Fannie Mae-Invitation Homes deal to support the rapidly growing middle of the single family rental industry. “A lot of the middle market guys (are) getting squeezed right now as their cost of capital is more expensive than the debt,” he said. “A lot of people are eager to see what that program really looks like.”

as possible but also gives us as much flexibility (as possible),” he said, noting the ideal financing would allow for swapping out of properties and not incurring pre-payment penalties. “For a lot of banks it just falls into the too- hard basket.” Pintar said that while there is “no shortage of capital” from non-traditional lenders such as Anchor, Genesis Capital and CoreVest, all of which also have strong processing operations that allow him to submit and get a loan within 24 hours, the higher cost of debt along with less flexible loan terms make those non-traditional lenders less appealing. “They are trying to securitize the loans so they have some things in there that are pretty specific … that basically make it punitive. There is a real lack of flexibility that we weren’t comfortable

“It is important to us to get debt that pushes out that debt expiration as far

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with,” he said, noting that the company eventually secured financing with three banks that are providing a 4.25 percent interest rate with 30-year loans. As a bonus, the financing the company secured also includes lines of credit with a 4 percent interest rate on a three-year term that can be drawn down as needed for the fix-and-flip side of the business. Smaller Operators Gaining Scale Rand, the OwnAmerica CEO, noted that the type of government backing floated by the Freddie Mac announcement will

growth. “It’s come a long way with the entrants in the markets like CoreVest … but they are in the mid-6s (in terms of interest rates) … if you can get into anything with a 4 in front of it, vastly more properties across the country become good investments.” American Finance), of the interest that both Fannie and Freddie are showing in supporting SFR as an asset class. “An acknowledgement that yes there are other ways to provide affordable housing. People don’t have to own their homes. They can also rent homes. … Seems like it’s important public policy going forward.” “I think that is huge,” said Ryan McBride, COO at CoreVest (formerly Colony Over the past couple of years CoreVest has been focusing more on the “broad base” of the investor pyramid, according to McBride, who echoed the theme provided by others that many of the investors in that broad base are maturing along with the market. “We are starting to see more and more of the smaller operators gain scale … with the debt capital like the loans we provide. …. They know that there are real financing opportunities for them,” McBride said, noting that his company also gets calls from investors looking to sell inventory. “Typically we have three or four buyers on speed dial, and we are happy to provide financing.” Financing for that maturing middle of the SFR market — those that Rand referred to as the “experienced private

allow landlords to increase their cash flow without having to increase rents — helping to achieve the government- backed entity’s stated goal of improved housing affordability. “That whole trend is as exciting as it can be. … the validation for a market that wants these type of products is pretty broad … I believe it’s going to happen and it’s going to fuel a wave of activity among the mid-market,” said Rand, noting that while financing for the SFR asset class has come a long way in the last five years, it still has more room for

“(Non-traditional lenders) are trying to securitize the loans so they have some things in there that are pretty specific … that basically make it punitive. There is a real lack of flexibility that we weren’t comfortable with.”

JEFF PINTAR FOUNDING PARTNER AND CEO, PINTAR INVESTMENT COMPANY

AVG FL IPS PER INVESTOR BY LENDER YTD 2017

5.49

GENESIS CAPITAL ANCHOR LOANS 5 ARCH FUNDING LENDINGHOME CASCADE LAND HOME FINANCING

2.32

1.77

1.37

1.23 1.19 1.15

CASON HOME LOANS PRIVATE INDIVIDUAL BANK OF AMERICA WELLS FARGO QUICKEN JP MORGAN CHASE

1.04 1.03 1.00 1.00

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“We are starting to see more and more of the smaller operators gain scale. … We have very, very good performance from these smaller investors. …The proof is in their performance. They tend to have very high occupancy, very low delinquency, very low eviction rates.”

RYAN MCBRIDE COO, COREVEST (FORMERLY COLONY AMERICAN FINANCE)

David Hicks, CEO at HomeVestors, a 21-year-old company known for the “We Buy Ugly Houses” branding. HomeVestors supports a franchise network of real estate investors who buy off-market homes directly from homeowners. “The last housing boom was fueled by the easy money. Every economist I talk to says how hard it is to get money has helped keep this housing boom in check,” said Hicks. “Now it’s getting easier for investors to get money, which might be the scary part.” The HomeVestors business is seeing evidence of strong interest from real estate investors in multiple metrics that it tracks, according to Hicks.

investor” — are also performing well, according to McBride.

“We have actually seen very little change in delinquency. We have had very good performance to date across the board,” he said. “Foreclosing on the borrower tends to be one of the last things we do.” Above-Average Foreclosure Rates An analysis of a select group of leading fix-and-flip lenders by ATTOM Data Solutions shows foreclosure rates are above the national average for five out of the nine lenders analyzed: LendingHome, Cascade Land Home Financing, Cason Home Loans, Patch of Land Funding, and 5 Arch Funding. Meanwhile foreclosure rates for four of the nine prominent fix-and-flip lenders analyzed were below the national average: Genesis Capital, Lima One, Anchor Funding and private individual lenders.

“We have very, very good performance from these smaller investors. The proof is in their performance. They tend to have very high occupancy, very low delinquency, very low eviction rates,” he said, noting that the smaller to mid- tier investors are also less likely to push rents up as quickly as the mammoth institutional investors. “They have been doing it for a long time, they know their market, they know their renters. They are very good at keeping their renters in the home.” CoreVest, which provides both 5- to 10-year loans for portfolios of rental assets as well as short term lines of credit for fix-and-flip investors, has seen “negligible” losses on the roughly $3 billion in loans it has originated, according to McBride.

“I’ve never seen so much clamoring for investment properties, and that’s

The increasing capital flooding, the fix- and-flip and SFR markets does concern

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why our franchise growth has been so strong,” he said, noting that the number of franchises under the HomeVestors umbrella has grown from 165 to 870 since 2009. Additionally, Hicks said that an increasing number of properties sold by HomVestors franchises are going to other investors rather than to owner- occupant end-users.

The increased interest in real estate investing by novice real estate investors, in part enabled by access to the efficient financing options available, is cause for some concern for Nahon, the midsize

“We were selling more than half to end-users a few years ago, and now we are selling more than half to other investors,” he said, noting that HomeVestors franchises combined are on track to purchase about 9,000 properties in 2017. “There is a huge interest in people wanting to be landlords, wanting to buy investment properties.”

investor planning to migrate from Florida to Midwestern markets.

“There’s a lot of people that are trying to buy houses for rentals and flips,” he said. “When we are evaluating a flip house, a $500,000 to $600,000 house, and the lady who works at the Thrifty Car Rental is walking the house, trying to buy it at the same time as us — that could be a small warning signal for us.” Build-to-Rent Strategy Emerging Although still evolving, the more mature financing options that have emerged in the SFR space over the past five years are now laying the groundwork for a shift in strategy

“The last housing boom was fueled by the easy money. Every economist I talk to says how hard it is to get money has helped keep this housing boom in check. Now it’s getting easier for investors to get money, which might be the scary part.”

DAVID HICKS CEO, HOMEVESTORS

FORECLOSURE RATES BY LENDER PCT OF LOANS IN FORECLOSURE

1.40%

LENDINGHOME FNDG

0.74%

CASCADE LAND HOME FINANCING

0.72%

CASON HOME LOANS

0.59%

PATCH OF LAND LNDG

0.55%

5 ARCH FNDG

0.40%

ALL LENDERS

PRIVATE INDIVIDUAL

0.34%

GENESIS CAP MASTER FUND

0.24%

0.05%

LIMA ONE CAP

ANCHOR FNDG

0.00%

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BUILD-TO-RENT BY-THE-NUMBERS

SOURCE: THE WHITMIRE GROUP, FOR ATLANTA-AREA DEAL

toward build-to-rent for some SFR operators, according to McBride.

“If you’re in a seller’s market and you don’t have anything to sell, you build. You create inventory. We basically made an extreme shift; in Atlanta that is all we do: build to rent.”

“We are seeing a number of groups pursue that in the Southeast and Texas,” he said, noting that this strategy provides an opportunity to pre-empt many of the maintenance and property management challenges that come with existing single family rental homes. “Looking at the typical things that break down in a rental home, and engineering around that so you cut down on the rental calls.” Adam Whitmire is employing the build-to-rent strategy in full force in Atlanta, where the low-hanging fruit of existing single family homes available at the necessary price point to convert to cash-flowing rentals has largely dried up.

ADAM WHITMIRE DIRECTOR OF ACQUISITIONS, THE WHITMIRE GROUP

“I can make a little bit more money by selling to homeowners. … But at the same time we have build-to-rent investors that will take down the whole subdivision as build to rent,” he said, noting that selling to build-to-rent funds saves on marketing and holding costs. “I can develop a subdivision of 100 houses or 200 houses, and instead of adding a marketing arm to my business I can sell the whole subdivision to a fund that will take it and rent it out. I’m in and out, done.”

You create inventory,” said Whitmire, director of acquisitions for The Whitmire Group. “We basically made an extreme shift; in Atlanta that is all we do: build to rent.” A market like Atlanta with a paucity of housing inventory — particularly affordable housing inventory — relative to demand, provides Whitmire with two favorable exit strategies when buying and developing lots for new construction: sell directly to owner- occupant homeowners or sell to SFR funds hungry for inventory.

“If you’re in a seller’s market and you don’t have anything to sell, you build.

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HIGHEST SHARE OF INVESTMENT HOMES

OKLAHOMA CITY, OK KNOXVILLE, TN TULSA, OK LAS VEGAS-HENDERSON-PARADISE, NV RIVERSIDE-SAN BERNARDINO-ONTARIO, CA MEMPHIS, TN-MS-AR CHARLOTTE-CONCORD-GASTONIA, NC-SC SACRAMENTO-ROSEVILLE-ARDEN-ARCADE, CA

32.2%

31.8% 31.8%

29.4%

28.4%

28.0%

26.1%

24.8% 24.8% 24.7%

DETROIT-WARREN-DEARBORN, MI ORLANDO-KISSIMMEE-SANFORD, FL PHEONIX-MESA-SCOTTSDALE, AZ

24.0%

Not everyone is buying into the build- to-rent strategy, however.

“We had two choices: go to other cities or lower our standards. … If you want to buy the less expensive junk there is a provider for you, but it’s not us. We wouldn’t be able to sustain our growth if we didn’t find new markets.”

“I don’t get it to be honest,” said Mark Bloom, owner and broker with NetWorth Realty, a Dallas-based company that helps investors acquire off-market properties. Bloom said in his experience it’s always cheaper to rehab an existing property than building new. “For me if it has an existing structure on it, I’m going to rehab it and rent it. Then I’ll look at tearing it down, when I’m the last house on the block that has not been torn down and replaced with new construction.” The build-to-rent strategy also can be employed in areas of Atlanta without strong demand from homeowners, according to Whitmire. “I can buy lots in areas that I can’t sell homes, but I can rent,” he said, providing as an example neighborhoods south of Atlanta with a higher share of renters. “The local economy may not have enough income or enough credit to buy

CHRIS CLOTHIER PARTNER AND VP OF SALES AND MARKETING, MEMPHIS INVEST

said. “This time around subdivisions will be built in those areas because they can be rented. The capital markets are driving it.” While Whitmire is willing to go into neighborhoods with lower incomes and lower credit scores, regional SFR operator Memphis Invest is intentionally choosing quality over quantity, according to Chris Clothier, partner and VP of sales and marketing with the firm, which specializes in acquiring, rehabbing and selling single family homes as “turnkey” rental

but there is enough income to rent … and I can make a good cash flow.”

Whitmire said many of his projects are infill developments in already established neighborhoods, but that the multiple exit strategies available to him also allow him to buy, develop and build in suburban and rural areas. Quantity versus Quality “The only reason we had new subdivisions with poor demographics during the last housing boom was government policy trying to push homeownership in those areas,” he

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properties to passive investors from across the country.

Founded in Memphis in 2003 by Clothier’s father, Memphis Invest has migrated to other markets as the available inventory of properties that meet the company’s quality standards has decreased, according to Clothier. “We don’t want to buy as many properties in Memphis as we used to because the market dynamics are not the same. We are looking to go into not just the secondary markets, but the tertiary markets, because we have a highly duplicative model,” he said, explaining that the company is

already active in Texas, Oklahoma City and Little, Rock Arkansas, but is also considering markets such as Cincinnati, St. Louis, Nashville and Louisville, Kentucky. “We had two choices: go to other cities or lower our standards. If you want to buy the less expensive junk there is a provider for you, but it’s not us. We wouldn’t be able to sustain our growth if we didn’t find new markets.” While Memphis Invest and large hedge- fund backed SFR operators are still banking on the relative safety of the suburbs, Bloom, owner of NetWorth Realty, believes the quality of those suburban neighborhoods is being eroded by the higher share of renters now present in those areas. “They are turning these subdivisions into rental neighborhoods, and low- income rental neighborhoods at that,” he said, noting that at the same time poorer populations are being pushed out of urban neighborhoods by more affluent millennials and baby boomers migrating to those areas. Bloom is banking on this trend he dubs “the reverse suburbanization of America” for his long-term investing strategy. “For the most part in any major area, I’m not buying in the suburbs,” he said. “I’m buying downtown. I’m buying in areas that in 10 to 15 years I’ll be able to tear down … hold the property and redevelop it when everything changes.”

“The high quantity of properties are located in the most challenged areas of markets … parts of the city that are struggling. That’s not always a good investment because the people there are struggling. That’s not the best areas for rents,” Clothier said. “They should invest today for return of capital first and return on capital second. Investors should focus on only properties where they can get back 100 percent of their money if they sell it.”

“They are turning these subdivisions into rental neighborhoods, and low-income rental neighborhoods at that. … For the most part in any major area, I’m not buying in the suburbs. I’m buying downtown. I’m buying in areas that in 10 to 15 years I’ll be able to tear down … hold the property and redevelop it when everything changes.”

MARK BLOOM OWNER, NETWORTH REALTY

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MY TAKE

Overcoming the Superfund Stigma: Hazardous Waste Sites, Property Values, Public Health

BY RUSSELL BARTLETT ENVIRONMENTAL HEALTH SCIENTIST CALIFORNIA DEPARTMENT OF PUBLIC HEALTH

Location, location, location. A home’s location can be its best advantage. It can also pose a big problem. Homes located near manmade environmental hazardous waste sites can have their property values decrease. In this article, one state health department asks

how it can understand this complex issue better. How does stigma affect property and health and what can be done for homeowners located near a Superfund site? What is a Superfund Site? Superfund sites are manmade environmental hazardous waste sites

the US Environmental Protection Agency (EPA) prioritized for cleanup because of the risk they pose to human health or to the environment. EPA currently oversees the cleanup of 1,342 Superfund sites in the United States. Many of these sites are located near residential neighborhoods.

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“EPA currently oversees the cleanup of 1,342 Superfund sites in the United States. Many of these

sites are located near residential neighborhoods.”

SUPERFUND SITES IN CONTINENTAL UNITED STATES (USSEPA, 2017)

Superfund Stigma The Site Assessment Section (SAS) of the California Department of Public Health (CDPH) investigates whether Superfund sites affect the health of those who live near them. SAS talks to many residents and homeowners. Besides concerns about their health, the department often hears about fears of declining property values. A home’s proximity to a Superfund site will foster fear that the home is contaminated and living there poses health risks. These fears are persistent, even in communities where a site is cleaned or doesn’t pose health risks. This is Superfund stigma. Merriam-Webster defines stigma as a “ mark of shame or discredit ”. The stigma related to Superfund sites is due to the perception of risk. If a Superfund site poses risk, it is vital for communities to understand the sources of that risk. For example, it may not be OK to walk on the site or site contaminants could have moved into the neighborhood

causing health risks. To ensure these risks are understood SAS reaches out into communities to inform residents what steps will minimize their risk. The department also provides EPA professionals with recommendations to reduce health risk. Often occurrences unrelated to a Superfund site, such as an unusual odor, dust in the air, or a change of color/taste in the drinking water can create a false perception of risk; even if the site is not the cause of the occurrence or data are available to show the site is not posing a health risk. Sometimes cleaning activities can heighten the perception of risk, such as workers in strange protective clothes collecting samples or the coming and going of large trucks. Media attention focused on a site can also falsely amplify the perception of risk. Homeowners whose homes devalue due to Superfund stigma can experience prolonged feelings of

stress. Enduring long periods of stress can negatively affect health. Feeling tired, nervous, angry, and anxious are common symptoms of stress. Stress can also cause stomachaches, headaches, and make it very difficult to relax or sleep. Stress can also spur people to increase their use of alcohol or drugs or to adopt unhealthy coping methods such as smoking or overeating. Over time, the constant strain of stress can contribute to heart disease and high blood pressure (Agency for Toxic Substances and Disease Registry, Coping with Stress that Environmental Contamination Can Cause, 2017 ). What Can We Do? How can we address Superfund stigma, even after a site is clean? SAS posed this question to health professionals, researchers, community leaders, and government agencies. First, they pointed out that this issue is not isolated to communities near Superfund sites. Many neighborhoods are near

NOVEMBER 2017 | ATTOM DATA SOLUTIONS

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manmade environmental hazardous waste sites that are not Superfund sites. Similar to Superfund sites, these sites have or had leftover industrial contamination. Residents living near these sites also experience stigma. Second, they suggested re-shaping media outlet narratives, organizing community residents, a strong government action, and quicker removal of pollutants. They also suggested providing an official certification for homeowners to show their home is clean and to offer tax incentives to encourage home buying in stigmatized areas. Last, the experts recommend widely distributing information about manmade environmental hazardous waste sites credible information can help reduce stigma. Real estate professionals and homeowners who want to learn about a specific Superfund site can start on this EPA webpage: Search for Superfund Sites

Where You Live. Through this link, a visitor can read a site’s background and locate the EPA staff assigned to each site. For health-related concerns, the federal Agency for Toxic Substances and Disease Registry (ATSDR) is a great source. ATSDR conducts assessments on every Superfund site in the nation. Each assessment examines whether a Superfund site’s contaminants are affecting people’s health. ATSDR collaborates with 25 state Cooperative Agreement programs to conduct these assessments. The Site Assessment Section of CDPH conducts California’s assessments. ATSDR posts these

assessments on this web link: Public Health Assessments and Health Consultations. ATSDR also provides health information about many toxic substances. For information about non-Superfund hazardous waste sites, look into your specific state agency’s resources. Typically, many states will have agencies that oversee cleanup and assess health concerns. The EPA has listed these agencies here: Links to Hazardous Waste Programs and U.S. State Environmental Agencies.

“Many neighborhoods are near manmade environmental hazardous waste sites that are not Superfund sites. Similar to Superfund sites, these sites have or had leftover industrial contamination. Residents living near these sites also experience stigma.”

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2016 ENVIRONMENTAL HAZARD HOUSING RISK HEAT MAP

INDEX VALUE

-8

455

CLICK HERE TO VIEW INTERACTIVE VISUAL

Next Steps Although cleaning up the contamination at hazardous waste sites will reduce the health risks, it won’t necessarily address the stigma. Stigma may lower property values causing homeowners long periods of stress. Stigma has many causes and requires multiple actors to address it. In addition to health professionals, government agency staff, media representatives, and community leaders– real estate professionals can be key participants. Real estate professionals have access to homebuyers and homeowners and can provide them with information about the state of a site’s cleanup. Communicating the right information about the health risk a site might or might not pose is crucial. Don’t be surprised if you meet a health professional seeking assistance from a real estate expert to help accomplish this vital task.

RUSSELL BARTLETT Russell investigates if hazardous chemicals are harming communities for the California Department of Public Health. In his nine years working for the State of California, he has assessed numerous potential human health issues related to Superfund sites, manmade environmental hazardous waste sites, and emergency chemical releases. Russell is also a Lecturer at San José State University in the Health Science and Recreation Department.

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SECTION TITLE

P r Public Records T a Tax Assessor D e Deed F c Foreclosure P m Plat Maps D g Demographics

L s Landslide E q Earthquake F i Fire N h

ATTOM Table of Data Elements

M I Mortgage Loan

P b Parcel Boundaries F I Flood S p Spills H h Health Hazards

P f Pre-foreclosure

O w Ownership S c Schools

E r Environmental Risks N c Neighborhood Characteristics P c Property Characteristics

S f Superfund Sites D I Former Drug Labs H c Home Condition

B f Brownfields A q Air Quality

R p Registered Polluters U v UV Index

U t Underground Storage Tanks R d Radon

Natural Hazards

F t FCC Towers

S h Sinkholes

C r Crime

C o Criminal Offenders

B p Building Permits

H v Home Values

A v Assessed Values

U S Utility Score

P v Pre-mover

MLS Analytics M s

Quantum AVM Q a

Coming Soon

Public Records Environmental Risks

Property Characteristics Neighborhood Characteristics

Natural Hazards Health Hazards

www.attomdata.com 1-800-462-5125

NOVEMBER 2017 | ATTOM DATA SOLUTIONS

BIG DATA SANDBOX

ZIP Codes where at least one in five homes is a vacant “zombie” foreclosure

NOVEMBER 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

NEVADA HOUSING SPOTLIGHT

Reno Leads Nevada Housing Rebound While Las Vegas Lags

BY JOEL CONE, STAFF WRITER

The epicenter of a rebounding Nevada real estate market has shifted Northwest. Median home prices in Reno have skyrocketed 160 percent since bottoming out in January 2012 and are

the Reno region. “I’ve had to re-adjust how I do real estate and how we approach everything. The market is so tight right now.” Median home prices in Las Vegas have posted an impressive — although still inferior to Reno — 135 percent increase since January 2012, but are still 20 percent below their pre-recession peak in June 2006. Lingering Distress in Las Vegas The slower rebound in home prices in Las Vegas means a higher share of homeowners seriously underwater — 20.2 percent there compared to 8.6

now just 4 percent below their pre- recession peak in July 2005, according to data from ATTOM Data Solutions. “It’s absolutely confounding,” said Michelle Foster, a sales agent with Sierra Nevada Properties covering

“It’s absolutely confounding. I’ve had to re-adjust how I do real estate and how we approach everything. The market is so tight right now.”

MICHELLE FOSTER SALES AGENT, SIERRA NEVADA PROPERTIES, RENO

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NEVADA HOUSING SPOTLIGHT

RENO LEADS NEVADA HOME PRICE REBOUND PRE-RECESSION PEAK JANUARY 2012 BOTTOM AUG-17

“I think the opportunity exists but for a lot less margins, so you’re okay if you’re able to do a volume of properties.”

$340,000

$325,000

$294,000

$235,000

$125,000

TRAVIS SCHURR REAL ESTATE INVESTOR AND OWNER OF WEBUYHOUSES. COM OFFICE FOR CLARK COUNTY, NEVADA

$100,000

LAS VEGAS, NV

RENO, NV

percent in Reno. The high share of seriously underwater homeowners (LTV of 125 percent or higher) in Las Vegas is pushing the statewide numbers to 17.4 percent, the highest in the nation. In its 2017 Midyear Economic Outlook, the Center for Business and Economic Research (CBER) at the University of Nevada, Las Vegas, reports that the state’s housing market is improving although the state “still faces a substantial issue with underwater mortgages, leading the nation in the percentage of mortgages with negative equity as well as the percentage of mortgages with negative or near negative equity.” Underwater rates are decreasing statewide, down 20 percent from a year ago, but the stubbornly high rates in Las Vegas translate into an above-average share of distressed sales still lingering there even as the share of distressed

quarter of 2017 at 8.9 percent of total home sales for the quarter, according to ATTOM. The median purchase price by home flippers was $155,400 and the average days to flip were 160 days for the quarter. “I think the opportunity exists but for a lot less margins, so you’re okay if you’re able to do a volume of properties,” said Investor Travis Schurr, owner of the WeBuyHouses.com office for all of Clark County. “There’s definitely opportunities to purchase property but the profit is not there.” Schurr, who said he has been flipping homes in Las Vegas since 2008, estimated his company is on track to do 70 flips in 2017. “Because we have a lot of investment money we’re one of the larger buyers in town so we do get a lot of property

sales in Reno has dropped to one of the lowest in the nation.

In the third quarter of 2017, 14.7 percent of all home sales in Las Vegas were distressed sales — short sales, bank-owned sales or foreclosure auction sales — above the nationwide average of 12.5 percent. Meanwhile distressed sales accounted for 6.4 percent of all Reno home sales in the third quarter, 11th lowest among 146 metro areas analyzed by ATTOM in its Q3 2017 U.S. Home Sales Report. Silver Lining for Speculators The higher share of distress sales still lingering in Las Vegas does come with a silver lining for real estate speculators looking for discount buying opportunities. The Las Vegas-Henderson-Paradise metro area had the fourth highest flipping rate in the nation in the second

NOVEMBER 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

NEVADA HOUSING SPOTLIGHT

sold to us because the owner needs a quick sell strategy,” he said. “They have equity in the property and they have a situation.” The TRIC up Reno’s Sleeve Although reverberations from the housing crash are still being felt in Las Vegas, its economy and housing market are benefitting from a statewide push to attract businesses to the state. The CBER report noted that the Governor’s Office of Economic Development has “pursued an aggressive policy of attracting high- tech and other firms to Nevada, giving tax abatements as an incentive to locate in Nevada.” That statewide policy has landed the Silver State a number of big fish when it comes to corporate migration — both in Reno and Vegas — but Reno has upped the ante with its new Tahoe Reno Industrial Center (TRIC) located

just south of Reno and Sparks and Northeast of Lake Tahoe. Big-name companies are relocating to the TRIC to take advantage of tax abatements and lots of available space. Some of the biggest new tenants include the Tesla Gigafactory 1, Google, Apple, Switch and Rackspace.

September 2017, according to the BLS. Additionally, the State Demographer’s office is projecting steady population growth of 1.7 percent per year every year from 2017 through 2021 for Washoe County. “Reno is affected by activity at the TRIC,” said Stephen Miller, UNLV economics professor and director of

Unemployment was down in the Reno metro area to 4.0 percent as of

“Reno is affected by activity at the TRIC (Tahoe Reno Industrial Center). In the situation in Reno, I would say that speculators are driving up prices today, which will stimulate construction so that employment and population grow. Prices will not be as high tomorrow because of the speculation today.”

STEPHEN MILLER UNLV ECONOMICS PROFESSOR

EQUITY RICH IN RENO

L INGERING DISTRESS IN LAS VEGAS SHORT SALES SHARE FORECLOSURE AUCTION SHARE

SHARE OF SERIOUSLY UNDERWATER HOMES (LTV 125+)

SHARE OF EQUITY RICH HOMES (LTV 50 OR LESS)

BANK-OWNED SALES SHARE

3.5%

30.1%

WASHOE COUNTY, NV (RENO)

8.6%

4.4%

0.7%

2.3%

16.8%

6.7%

CLARK COUNTY, NV (LAS VEGAS)

3.3%

20.2%

LAS VEGAS, NV

RENO, NV

NOVEMBER 2017 | ATTOM DATA SOLUTIONS

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