Residential Real Estate Industry Preps for Consolidation Amid Market Changes

With the housing market on the mend, Bloomberg reports that a consolidation phase may be looming. Having amassed foreclosures in bulk at the start of the housing crisis, large Wall Street-backed corporations are now on the lookout for smaller property management companies ready to sell. 

According to Bloomberg, more than 200,000 homes have been bought by institutional investors since the housing crash, but many of these investors have slowly reduced their foreclosure acquisitions as the market has recovered, instead focusing efforts on managing their properties efficiently.

Larger companies, such as Blackstone, Colony and American Homes 4 Rent, are finding alternative strategies to thrive, namely buying mid-grade real estate investment firms that are seeking a cash-out and exit from the industry.

As an example, Bloomberg reports that American Homes 4 Rent recently purchased the smaller company Beazer for about $263 million in debt and stock.

The rental industry looks healthy as a whole however, with a U.S. home ownership rate of 64.8 percent, a nearly 20-year-low, according to the Census Bureau. This low ownership rate means that millions of Americans are renting or looking to rent, which explains the nearly 14 million rental homes currently in use across the country.

We will all have to keep an eye on this trend to see how these changes in market conditions affect not just real estate investment institutions, but also smaller residential investors. We expect the big guys to focus mainly on the tier right below them, but with over 5,000 investors in the country owning 26-100 homes, these institutions will be ignoring a lot of potential targets.