“With the low-hanging fruit from the housing bust mostly picked, Wall Street-backed buyers of real estate are increasingly turning to quantitative data analysis as a way of accelerating their search for a dwindling supply of available homes that can be transformed into rental properties…
…Math-driven models powered by historical patterns can size up homes sight unseen and calculate future income in minutes, allowing private-equity giant Blackstone Group LP, the Alaska Permanent Fund Corp. and other bulk purchasers to skirt neighborhoods with softer rental demand or properties that need costly repairs. Advances in how companies use technology to evaluate mountains of data has quickened everything from stock trading to student-test-performance evaluations to patient care. Behind the new speed in real estate is a change in how big buyers find most of their properties.”, Timothy W. Martin, “Speed Buyers Comb Homes”, The Wall Street Journal, April 14, 2015
“Two points: Isn’t all this activity/buying/recovery of prices (especially the participation of major institutional investors) strong evidence that the pre-crisis housing bubble wasn’t really that big? Don’t the facts and the data in recent years on rapidly rising home prices seem to show that we are recovering more from an overreaction/panic in 2007-2011, than that pre-crisis homes were wildly over-valued? I think so. Also, if the institutional investors use quantitative models, why aren’t prospective individual homebuyers?”, Mike Perry, former Chairman and CEO, IndyMac Bank
Speed Buyers Comb Homes
By Timothy W. Martin
ATLANTA—It took Akuansa Graham seven minutes on a recent morning to craft a $124,000 bid for a three-bedroom Buford, Ga., home he had never seen.
The Starwood Waypoint Residential Trust executive went to public auctions in the years after the financial crisis looking to buy homes lost to foreclosure. Now the 38-year-old crouches over a computer and relies on algorithms that evaluate home values, proximity to schools and crime rates to outrace rivals for any remaining bargains offered by real-estate agents.
“You can’t see your competitors now, so it’s important we move before everyone else does,” said Mr. Graham, a regional director based in Atlanta.
With the low-hanging fruit from the housing bust mostly picked, Wall Street-backed buyers of real estate are increasingly turning to quantitative data analysis as a way of accelerating their search for a dwindling supply of available homes that can be transformed into rental properties. Math-driven models powered by historical patterns can size up homes sight unseen and calculate future income in minutes, allowing private-equity giant Blackstone Group LP, the Alaska Permanent Fund Corp. and other bulk purchasers to skirt neighborhoods with softer rental demand or properties that need costly repairs.
Advances in how companies use technology to evaluate mountains of data has quickened everything from stock trading to student-test-performance evaluations to patient care. Behind the new speed in real estate is a change in how big buyers find most of their properties.
In the aftermath of the 2007-2008 housing crash, large investors mostly competed for deals face to face at public auctions. In 2009, homes acquired after foreclosure or for less than the amount owed on the mortgage—also referred to as a “short sale”—accounted for about half of home purchases in the nation, according to Jade J. Rahmani, an analyst at Keefe, Bruyette & Woods Inc.
As those fire sales slowed, Wall Street-backed buyers turned their focus to mainstream real-estate listings as a way of satisfying their investors who wanted increased exposure to real estate. By 2014, foreclosures and short sales fell to 31.2% of all purchases as single-family home sales to institutional investors and all-cash buyers hit four-year lows, according to RealtyTrac.
“The first phase was distressed homes,” said Justin Chang, chief executive of Colony American Homes Inc., one of the largest single-family rental companies. “The second phase is acquiring homes in a more regular way.”
When new listings become available, Blackstone Group’s Invitation Homes now taps a database of more than 42,000 homes it owns nationally to pinpoint how much renovation a property for sale may require based on its location, square footage and age, among other factors, said Dallas Tanner, the firm’s chief investment officer. Invitation Homes is the biggest owner of single-family rental homes in the U.S., according to real-estate data tracker RentRange.
Silver Bay Realty Trust Corp., which owns about 9,200 homes, learned from its models that not everyone in Phoenix wants a swimming pool—some found the amenity too expensive to maintain or a hassle, Chief Executive David N. Miller said. Silver Bay has since only targeted homes with pools when it can charge higher-than-average rents.
Competition for conventional real-estate listings is particularly fierce in Atlanta, where the six largest institutional buyers own more homes than in any other market, according to RentRange.
Oakland, Calif.-based Starwood Waypoint, one of the six, said it has cut the time it takes to calculate a first bid on a house to eight minutes. “We encourage our guys to make an offer before they see the house,” said Ali Nazar, Starwood Waypoint’s chief experience officer. “I don’t want to wait for anyone else. Our competitors are also fast.”
One local Atlanta real-estate agent said bulk purchasers are making it more difficult for individual home buyers to compete for new listings. Home prices in Atlanta have jumped 22.5% in two years, according to the S&P/Case-Shiller Home Price Index’s data through January.
“They’re outbidding all of us,” said Brian O’Neal, a Realtor based in McDonough, Ga., a southeastern suburb of Atlanta.
Operating from the firm’s largest branch office at a former meatpacking plant in Atlanta, Starwood Waypoint’s acquisitions team evaluates potential purchases with a data map that ranks the “livability” of local neighborhoods according to information provided by local employees of the firm who frequently visit the area. Factors include proximity to retailers and how noisy the neighborhood is.
Employees ultimately weigh about 15 variables when calculating a bid price, the monthly rent and renovation costs. Employee bonuses are based on the accuracy of their home bids and rental estimates.
After submitting a bid, Starwood Waypoint employees visit the home with iPads and take it through a 45-minute inspection, marking what renovations need to be made. The results—labeled “satisfactory” or “unsatisfactory”—get shared on the company’s internal network and are used to keep tabs on all of the roughly 2,700 homes Starwood Waypoint owns in the Atlanta area.
On a recent visit to a suburban Atlanta home that Starwood Waypoint owns, David Zanaty, a senior vice president, walked into a four-bedroom home available to rent and glanced at his smartphone. “Our guy was here just yesterday,” Mr. Zanaty said. “And there aren’t any unsatisfactory notes.”
Mr. Zanaty inspected whether, as instructed, the thermostat was left at 67 degrees; it was. He examined the second-floor bathroom, where silver faucets were offset by walls painted in a “toasted almond” color, a pairing seen in many Starwood Waypoint homes because the firm purchases those items in bulk.
“This is a good house,” Mr. Zanaty said, glancing at the living-room blinds to confirm they were pointed upward.