Rising prices to blame?
We just closed on the sale of a Mallory Creek town home to The Blackstone Group but there is little doubt their buying patterns of local real estate has changed; dramatically. Sources tell me they are down by over 80% which is a huge reduction. Potentially a market changing reduction. Remember this is the largest investment group that has purchased at least 4,293 properties throughout Dade, Broward and Palm Beach County over the past couple years.
With all data showing our current market is very strong we have to go back and remember what started this amazing rebound. It was investors like Blackstone entering the market that held the key. Some people have told me they felt the Government was involved in getting these large companies to jump into the fray to help shore up what was a very sick market. Many do not understand just how many homes these groups have purchased but when things were in full force Blackstone alone was purchasing 75 to 100 properties a week here in our area.
Much of the slowdown has been blamed on higher prices and fewer buying opportunities. There indeed may be some merit to this. If you work in the industry locally you know that Blackstone is utilizing a new negotiation technique to their advantage. In practice once a strong offer has been accepted and the seller is engaged the investment group will cancel the purchase contract. If it is a property they still like they will offer a discounted price to stay in the transaction. Typically this new price will be in the 90%+/- range of the original contract amount.
Blackstone initially stated their intent was to buy and hold these properties for 5 to 10 years until the market rebounded. During that time they would manage the properties as rentals through their Invitation Homes Group. But the realities of managing thousands of homes have set in and from what others have told me Blackstone alone has well over 2,000 properties sitting vacant here locally. There are whispers that large blocks of homes will be sold as real estate investment trusts. Because of the volume of homes my mind wanders back to the mortgage backed securities that got us into trouble in the first place.
Let's look at just one of Blackstone's 4,293 properties to illustrate the issues of managing property. In December through their IH3 Group a home was purchased in the Candlewood neighborhood at Boca Country Club for $350,000. The seller in that transaction had paid $285,000 in 2012 so we know Blackstone wasn't in at the bottom. They listed the home for rent on our multiple listing service for $2,800 a month on March 22nd only to cancel the listing after it was on the market for 28 days. Property taxes on this home will be running them about $400 per month. Monthly association fees add on another $435 a month. You add in real estate commissions, the cost of improvements to bring property into rentable commission, property insurance and you start to see the picture of what managing one property is like. And it presumably is still sitting out there empty with the costs adding up. Now multiply that by 4,293.
With less energy spent on purchasing more properties one would hope that companies like Blackstone can focus more on the efficient management of these properties. Or the packaged sale of them? So far the local markets are holding their own despite these pullbacks but keep a keen eye open for changes that may be heading your way. Always interesting, always fun.
Paradise Sharks Real Estate