Zillow has sold homes in recent weeks to prominent institutional landlords, including rental operations tied to Cerberus Capital Management, KKR & Co (NYSE:KKR). and Tricon Residential, which counts Blackstone (NYSE:BX) Inc. among its largest shareholders.
Now, the Seattle-based real estate giant is pursuing larger deals as it works to unload roughly 18,000 homes in the shutdown of its so-called iBuying business. The company agreed this week to sell 2,000 properties to Pretium, a New York investment firm that’s the second-largest U.S. single-family landlord, with more than 70,000 houses.
Zillow isn’t alone. Wall Street landlords, searching for properties in the inventory-starved pandemic housing market, have also been tapping iBuying competitors Opendoor (NASDAQ:OPEN) Technologies Inc. and Offerpad Solutions Inc. for purchases. The three companies have sold more than 20% their homes to investors this year, according to an analysis by Bloomberg.
“The bigger that number gets, the worse I feel about it,” said Mike DelPrete, a real estate tech strategist and scholar-in-residence at the University of Colorado Boulder. “I get that there are business considerations. Zillow flicking off thousands of houses at a time makes sense as a business. But this is more than business, this is housing.”
Read more: Cerberus Leads Wall Street Landlords Finding Hidden Homes to Buy
Zillow has circulated a list of 9,000 properties to would-be buyers in recent days, though that number is expected to fluctuate, according to people familiar with the sales effort who asked not to be named because the matter is private. Some investors are underwriting bids on the entire portfolio, one of the people said.
The homes that Zillow has agreed to sell to Pretium likely commanded a price of close to $750 million, according to a note from analysts at Berenberg Capital Markets.
Representatives for Zillow and Pretium declined to comment on the transaction.
“We intend to sell our remaining inventory — which represents less than three-tenths of 1% of all U.S. homes sold this year — the same way we always have: By selling to buyers of all types including individuals, families, individual investors, institutional investors and nonprofits,” Zillow said in a statement.
The iBuyer model emerged in 2014 when Chief Executive Officer Eric Wu, the venture capitalist Keith Rabois and others founded Opendoor, seeking to improve the notoriously complex process of selling a home. The company used pricing algorithms to make bids on properties, made light repairs on the homes it acquired and put them back on the market.
Read more: Zillow Home-Flipping Bonds Draw Wall Street Deeper Into Housing
As they’ve matured, buying thousands of homes a month, the iBuyers have allowed Wall Street firms to buy properties before they hit the open market, letting landlords jump ahead of regular buyers waiting for inventory to be listed.
Bloomberg sifted through tens of thousands of property records from Attom Data Solutions to find homes that the three largest iBuyers sold to corporate or legal entities this year. There were more than 5,800 properties on that list, most of which were acquired by entities affiliated with institutional landlords.
Opendoor, the largest iBuyer, sold roughly 3,400 homes to those buyers this year, accounting for more than a quarter of the company’s sales, according to the analysis. For Offerpad, it was 21% of sales; it was 19% for Zillow, not counting the Pretium transaction.
Opendoor declined to comment. Offerpad typically sells 10% to 20% of its home to single-family landlords, though it “ebbs and flows based on buying trends,” a representative said in an email.
Mounting Scrutiny
The number of homes investors purchase from iBuyers is poised to increase as both groups seek to accelerate growth. It’s also likely to attract greater scrutiny. Politicians on both sides of the aisle are eyeing Wall Street’s role in housing. IBuyers, meanwhile, have also been under the microscope. In September, a TikTok video created by a Las Vegas Realtor that insinuated that the companies were manipulating homes prices went viral.
Read more: Wall Street’s Favorite Suburban Housing Bet Is Getting Crowded
This week, Democratic senators Tina Smith, Sherrod Brown and Jack Reed sent a letter to Zillow Chief Executive Officer Rich Barton that referenced a Bloomberg News story from Nov. 1. The lawmakers asked for information on how many homes his company has sold to Wall Street firms and its plans for selling its remaining properties.
A Zillow spokesperson said the company has been in close communication with the committee and is working to provide information about winding down its iBuying business.
A representative for Pretium, which was mentioned in the letter, said in a statement that the company “provides a high-quality housing experience through consistent, dependable and attentive service at our well-maintained and affordable homes.”
There is new urgency to these questions as soaring home prices shut many potential first-time buyers out of the real estate market.
IBuyers argue selling to investors allows them to serve more customers, and helps them gain economies of scale and pass on better prices to homesellers. For single-family landlords, working with tech companies lets them boost supply and satisfy the rampant demand that’s driving up rents.
“There’s demand for rental housing and there’s not enough of it,” said David Howard, executive director of the National Rental Home Council, a trade group. “Whatever companies can do to bring more supply online, I think that’s a good thing for rental housing and it’s absolutely good for renters.”
©2021 Bloomberg L.P.
Source: Economy - investing.com
