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Schafran explained further: "Whereas the real estate bubble of the 2000s created artificial values in land and housing, the crash created the opposite, homes that are worth more than their price. ... What we're seeing right now is big chunks of capital, some of them having emerged largely unscathed from the financial crisis, all of a sudden they're sitting on big pools of money and they have to reinvest it."
According to Edelman and Schafran, major investors like Colony have been buying up homes for several years now in cities that were severely impacted by the foreclosure crisis, including Atlanta, Phoenix, Miami, and Las Vegas. In some markets, Edelman said, they have actually pushed up the prices of houses and squeezed out mom-and-pop investors and owner-occupiers. The rise of these new corporate housing investors, focused on a market of single-family home rentals, has been so sudden and unprecedented that the national business press has dedicated significant resources to cover this trend. Reporters from the Wall Street Journal, Forbes, Bloomberg, and others have written extensively about the growth of this now multibillion-dollar industry, which feeds off the pipeline of foreclosures and the growing ranks of people who can't afford to buy a home anymore.
Colony American Homes is one of the biggest players. In its most recent regulatory filings with the US Securities and Exchange Commission, Colony claims to have spent more than $1.8 billion to obtain 12,247 homes in nine states. All of these houses were "distressed" sales, meaning foreclosures or short sales, sometimes made in bulk by bank owners, but often also bought at auctions held on county courthouse steps where speculators and flippers have fought over the spoils of the recession.
Most of the money behind Colony American Homes has been contributed by a network of limited liability companies controlled by Barrack and a few of his business partners, some of which are incorporated in offshore tax havens in the Cayman Islands. One of the single biggest funders of Colony's single-family-home buying spree has been the University of California. According to securities filings, UC owns a 6 percent stake in the company.
Representatives from Colony Capital and Colony American Homes did not respond to emails and phone calls requesting comment for this report.
The company's website lists many houses for rent in Richmond, Antioch, Pittsburg, and Bay Point. An SEC filing from 2013 showed that Colony owned at least 142 homes in the Oakland-Fremont metropolitan area. An examination of records in the Alameda County Recorders Office shows that Colony has been buying up foreclosed houses in Hayward, San Leandro, and Berkeley, in addition to Oakland. Colony has acquired another 90 homes in Vallejo and Fairfield, and 114 homes in Sacramento.
Edelman sees numerous problems in the rise of this new foreclosure-to-rental industry. Perhaps the biggest is the fact that millions of families have seen their savings evaporate, and, just as home prices have begun rising again, many families are finding themselves unable to purchase houses and regain equity. Instead, large, cash-flush investors are monopolizing the wealth recovery.
"I think that as this industry grows we could see another massive income transfer," said Edelman. "Corporations can access credit more easily, therefore they have a disturbing advantage over a family in buying a home. There are a lot of qualified borrowers right now that can't get mortgages," borrowers who will therefore miss out on home price recoveries.
Edelman is skeptical that these investors will benefit the communities in which they have established "home rental platforms," as they call their concentrated property holdings. "With investors, we don't know when they're gonna leave a community," said Edelman. "And when they do leave they're likely to take price gains with them. This creates a more volatile market."
Colony Capital is only one of many private equity-backed companies to take advantage of the foreclosure crisis by transforming single-family homes into profit generators for wealthy investors. In fact, the industry was arguably created by a pair of investors right here in Oakland.
In June of 2009, when banks were still failing and homeowners were defaulting on mortgage payments in record numbers, Doug Brien and Colin Wiel were pooling their personal savings with a few friends and buying foreclosures in the suburban sprawl of east Contra Costa County.
Brien, a former NFL placekicker, including for the 1994 Super Bowl champion San Francisco 49ers, grew up in Concord. His business partner, Wiel, is a UC Berkeley-trained engineer who got rich selling an e-commerce startup to eBay. The pair's first fund to acquire foreclosures and turn them into rentals was incorporated under the name Wiel Brien LLC. Their small office was in the Piedmont Executive Center building on Grand Avenue. Their strategy promised to be so lucrative that they quickly incorporated several more funds with generic names like BCG-Wiel Brien Fund 3, LLC. As the money poured in from investors to acquire even more foreclosed houses, they traded up their corporate real estate, moving their offices to the 1999 Harrison tower overlooking Lake Merritt, and they incorporated Waypoint Homes.
Twenty-two floors up, Waypoint's national headquarters has sweeping views of the Oakland hills and the flatlands toward San Leandro. Using binoculars, the company's employees could see perhaps seventy of their investment homes sprinkled around the San Antonio and Fruitvale neighborhoods, and especially concentrated between Seminary Avenue and 104th Avenue below the I-580 freeway. The walls of Waypoint's headquarters are decorated with framed photos of the company's early home purchases, and even portraits of families who rent company properties. Etched in a glass wall facing the lobby is the motto: "reinventing renting."
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