Wall Street-backed firms betting on rising Memphis rental demand

(Editor’s note: A  story about the Memphis housing market that was published online this weekend vastly overstated the growth of households renting in Memphis and Shelby County.


Investors from New York to San Diego have bought more than $1 billion worth of houses in Memphis and the suburbs, a flood of out-of-town landlords that soaked up thousands of distressed homes and turned them into rentals.

Buying homes throughout the metropolitan area, the tide of outside investors has shored up housing prices, but also raised concerns about another housing bubble or ruined neighborhoods if the owners prove to be bad landlords.

Fueled by historically low interest rates, entities such as private-equity firms, hedge funds and big investors, along with thousands of smaller individual buyers, have poured at least $1.17 billion into the Memphis region’s housing market through all-cash sales over the last four years, data from market researcher RealtyTrac shows.  (See map of top buyers and where they spent the most money.)

While the inflow of out-of-town cash has helped prop up a housing market wracked by foreclosure and job losses, it also has spurred Memphis’ shift. It is more of a landlord’s city.

“When I moved in it was mostly homeowners, and I would say now about half of the houses are renters — or a little more than half,” said Lawshé Gray of Cordova.

Seven years ago, Lawshé and Cornell Gray purchased their three-bedroom brick home in the leafy River Ridge neighborhood in the Memphis suburb.

Back then, most homes in the subdivision were lived in by owners. But many of Gray’s neighbors were hard hit when the housing bubble burst, and many have since moved.

Next door, the home was recently rented by a military couple. Another a few doors downalso has new renters. Her neighbor, Angela Butler, sees the same trend. Rentals now fill River Ridge, she said.

Wall Street comes home

Wall Street-backed firms are betting on the ranks of Memphians who lost their homes in the housing crash and those who don’t qualify for a mortgage under today’s tougher bank lending standards.

The U.S. homeownership rate fell to 64.7 percent in the second quarter, the U.S. Census Bureau said on July 29. That’s the lowest level in nearly two decades.

Big investors have purchased swaths of homes across the area — mostly at deep discounts out of foreclosure, transforming the housing market. Of the largest 25 residential property sellers in 2013, half were investment firms, according to Chandler Reports, a market researcher.

The influx of Wall Street-backed buyers has the potential to keep driving up property prices, setting the stage for another housing bust, said Bert Less, owner of Leco Realty in Memphis.

“At some point, it’s going to reach a tipping point, and bam. We will have another crash,” said Less, who manages more than 1,200 rental homes. Less said he “shudders” to think about what will happen when the larger investors decide to sell their Memphis holdings.

If they bail out quickly, home values could fall.

Cash sales

What some regular home buyers have encountered is a new experience in Memphis — getting pushed aside by cash buyers.

Memphis placed No. 7 out of the top 30 metro areas for cash sales in this year’s first quarter, reported real estate researcher Zillow Inc. Zillow rival RealtyTrac pegged the percentage of Memphis first quarter all-cash sales at about 55 percent, compared with 43 percent nationally.

Of the Memphis area’s first-quarter cash sales, about 70 percent involved the lower tier of home prices, making it harder for first-time homebuyers and lower income buyers to compete, said Svenja Gudell, Zillow’s director of economic research. The Seattle-based company’s research shows cash sales in the Memphis metro area peaked in the fourth quarter of 2012.

All-cash deals often make conditions harder for buyers who need a mortgage, because the sellers prefer the speed and certainty of cash, Gudell said.

They also reveal the true softness and unevenness of the housing recovery, she added.

Boon to local firms

The all-cash investors have been a boon to local firms like Memphis Invest GP, which buys, renovates and manages single-family homes for individual investors.

Chris Clothier, a Memphis Invest partner and director of sales and marketing, said the company has purchased more than 1,200 homes on behalf of about 900 smaller clients across the country, and also manages more than 2,500 single-family home rental properties locally, and an additional 400 in Texas.

The firm steers clear of institutional clients, preferring to work with individual buyers, Clothier said. Memphis Invest’s average client owns about three homes, compared to thousands acquired by institutional buyers.

Memphis Invest clients earn 7.5 percent to 9.5 percent annually on their Memphis properties, he said. Clothier described the company’s buying patterns as a “sideways horseshoe” beginning in Frayser, Raleigh, and Bartlett stretching out to Cordova, into Southeast Memphis and across southern Memphis to Whitehaven.

The firm avoids Downtown, Midtown, and the city’s central corridor because there isn’t as much affordable property available and the returns aren’t as high, Clothier said.

Quality of life

Just what heavy ownership by out-of-town landlords means for Memphis neighborhoods isn’t certain.

Cassandra Bell-Warren, owner of 4 Success Realty and Property Management of Memphis, said investors prevent vacant homes and blight.

“It’s a win-win for everyone,” said Bell-Warren, property manager for 260 Memphis-area houses. “If you look at the number of homes that sit vacant, the investors help keep the neighborhoods up.”

Phyllis Betts, founder of the Center for Community Building and Neighborhood Action at the University of Memphis, said converting vacant properties to rentals can sustain neighborhoods if the landlords maintain the neighborhood quality of life, take care of the rentals and find good tenants.

But problems could emerge when landlords fall short and let houses deteriorate, she said.

Gray on Wind River Circle says she hasn’t noticed any disarray as the street has shifted from mostly owners to renters. “We don’t have any problems — this is a good neighborhood,” she said.

For many in the city, though, renting is their only option. In January, recently divorced Leigh Musgrave searched northern Cordova for a rental home within the ZIP code of her 10-year-old son’s school, Macon-Hall Elementary. In many subdivisions, almost all the homes had rental signs in the front yards.

Musgrave turned to the real estate firm Crye-Leike, whose home rental arm manages property for New York investor Progress Residential. She found a three-bedroom home built in 2007 in the Carlyle Place subdivision.

Shelby County property records show the home first sold in 2007 for $170,900. Progress Residential bought it last year for $136,000. Musgrave pays $1,325 in rent per month.

“There are a few vacant homes, and I don’t think anyone on this street owns these homes anymore,” Musgrave said.

Because of that, she said, it’s been harder to get to know her neighbors.


By: Jennifer Backer- 2014 Commercial Appeal

Category : Blog &Latest News

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Founded in 1988 by Bert A. less, Leco Realty has a staff of seven full time employees and a full complement of crafts and maintenance vendors. Still a family owned operation, the company manages over 1,500 units in the Memphis metropolitan area. Read More


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