Oliver Chang quit his job as head of housing strategy at Morgan Stanley last year to follow his own advice and invest in distressed homes to rent. He’s since become one of the largest landlords in Atlanta.
Chang, 37, has more than $500 million for his company Sylvan Road Capital LLC to acquire and rehabilitate homes and expand into other cities across the U.S., according to a letter sent this weekend to investors obtained by Bloomberg.
The former analyst has gained investors including Carlyle Group LP after writing a six-page report in July 2011 detailing how the worst real estate crash since the Great Depression was moving America toward a “rentership society.” While he foresaw that leasing single-family homes could become a large-scale business similar to apartments, he didn’t predict how fast private equity firms backed by cheap borrowing from Wall Street would flood regions hardest hit by the foreclosure crisis to help fuel the fastest home-price gains in seven years.
“I’ve certainly been surprised by the pace of acquisitions,” Chang said in a telephone interview from Atlanta. “There has been a rush of capital into the space.”
Blackstone Group LP has spent $5 billion on almost 30,000 properties across 13 metropolitan areas since last April to become the largest rental buyer in the U.S. It’s obtained $3.6 billion in loans from banks including Deutsche Bank AG.
Largest Landlords
Other large-scale landlords include Public Storage founder Wayne Hughes, who’s bought more than 14,000 properties though his American Homes 4 Rent, using $600 million from the Alaska Permanent Fund Corp. and a $500 million credit facility with Wells Fargo & Co. They’re joined by hedge funds and former bankers, including Donald R. Mullen Jr., an ex-Goldman Sachs Group Inc. executive, whose Progress Residential LP, formerly known as Fundamental REO LLC, plans to spend as much as $2 billion by 2016.
Institutional investors are trying to turn what has traditionally been a mom and pop business into a new asset class after more than 5 million Americans lost their homes to repossession since the real estate crash of 2008. While they’ve dominated some foreclosure auctions and complete the biggest bulk purchases, the pool of institutional ownership is still less than 1 percent of the $2.8 trillion rental market, according to Goldman Sachs estimates.
Chang recognized the opportunity while touring neighborhoods in Phoenix in 2011, where prices were down 50 percent from the peak in 2006, compared to the national average of a 35 percent fall. Broad housing market data wasn’t telling the story of what was happening on the ground, he said.
‘Something New’