Colony American Homes, part of Colony Capital LLC (Colony), is back in the housing game. Colony is raising money to buy more homes by issuing over $500 million in bonds backed by rental income on their inventory of 3,000+ homes. Last year, Colony gobbled up thousands of cheap homes all over the nation. The other dozen big investors trying to make a dent in California have slowed their buying spree, largely due to rising home prices and the companies running low on funds.
Colony’s hoping these rent-backed bonds will pull these investors back into the buying game.
We’ve been watching these institutional investors carefully. Institutional investors — defined as buyers of ten or more properties per year — have mostly bowed out of California real estate, maybe for good. As of January of this year, institutional investor purchases were only 2.1%, down substantially from 7% in January 2013. With most investors out of the game, sustainable home prices return.
Colony owns 840 homes in California so far. That’s all. The paradigm shift predicted by the over-eager is far off into the future — this tiny slice of California homes is not going to move prices any time soon.
The factors most affecting the speculator price bump California experienced recently were not big investors with rent-backed bonds, as others want to hype. It was, in fact, mostly independent flippers and some buy-to-let investors not backed by big hedge funds.
We’re not going to discount the potential future impact of Colony and the other big investors. But for this year? Don’t expect Colony to make a dent in the market.
Re: “Colony plans $513.6 million in bonds tied to rental payments” from the Los Angeles Times