Ken and Susan Beran embodied that old idea of the American dream. They married. Built a house. Raised a daughter within its walls. But after 30 years, as Ken eyed retirement, the Berans envisioned a different dream. In December, they moved to a new home — this time, to rent. Ken said he can't imagine ever buying a home again. Susan, a first-grade teacher, hasn't felt so calm in years. "I'm leaving a building I had to maintain, had to stress over," Susan said. "I'm taking all of my memories with me."
Bad credit, ravaged savings and evolving attitudes are driving more Americans to rent houses, and big-money investors are waging war to win their business. Few are mightier than the Blackstone Group, which dropped $150 million to buy 1,000 Tampa Bay homes — in just the last six months.
The New York-based private equity giant has already bet $3.5 billion across the country that the housing crisis has fundamentally changed the way many families live. Once-proud homeowners like the Berans, they believe, are beginning to reject home ownership altogether.
The next generation may do the same. "Millennials" between their late teens and early 30s have so far spoken with their wallets that they like driving borrowed Zipcars, watching Netflix and renting bikes, tools and dresses. Investors are betting millennials will apply that thinking to the biggest expense of their lives.
"People don't stay in houses that long anymore," said the Berans' 20-year-old daughter, Caitlin. "People move."
The investor gold rush is funding small armies of local agents, contractors, managers and analysts, who binge on bargains and retool them into "rent ready" homes. But it's also stoking fears of a new housing bubble, marked by feverish spending, ballooning prices and fierce battles for big returns.
"We have seen more speculative activity than I ever thought we would have seen" after the bust, Wells Fargo senior economist Mark Vitner said this month. "Speculation like that never ends well."
'Bet on America'
For decades big investors like Blackstone shied away from single-family home rentals, a messy business where mom-and-pops often fought over lean returns.
But with home prices in cities such as Tampa nearly half off their peak, legendary investor Warren Buffett seemed to fire a starter pistol last February when he said he would buy "a couple hundred thousand" homes nationwide.
It's hard now "to find a private equity firm on the planet that doesn't have a strategy in this space," Waypoint Homes chief executive Gary Beasley told a financial conference in January. "The market is growing faster than anyone imagined."
In the last year, an odd assortment of private-equity giants, funding arms and financiers have descended on Tampa Bay, according to a Tampa Bay Times analysis of property records, court filings and foreclosure auctions. The bigger players include:
• Blackstone subsidiary Invitation Homes, which since first buying here in August has spent an average of more than $800,000 a day. The local shopping spree is part of its "bet on America," a $100-million-a-week gorge that has made the firm the "largest owner of individual houses" in the country, CEO Stephen Schwarzman said this month.
• Silver Bay Realty Trust, a public Minnesota trust, which spent $40 million buying 400 homes, adding to hundreds more it already owned.
• American Homes 4 Rent, a Malibu firm led by the billionaire founder of Public Storage and backed by hundreds of millions of Alaskan oil dollars. It spent $80 million on 500 homes.
• Fundamental REO, a New York fund led by former Goldman Sachs executive and subprime-mortgage mastermind Donald Mullen. The fund dropped $10 million on 90 Tampa Bay homes.
• American Home Real Estate Investment Trust in Atlanta, led by a CEO who began buying foreclosures from his living room, which paid $8 million for more than 100 homes.
The homes are in nearly every local city, from a handful in the Spring Hill suburbs to hundreds across Tampa's sprawl. Some are densely packed, as in Riverview, where five investors own 13 on a single block. Gobbled up at deep discounts, the homes range wildly in shape and scale, from a $20,000 home lost among weeds near New Port Richey to a $340,000 Lutz McMansion.
Built in homeowner-packed neighborhoods, all are now destined for rent, a sudden jolt sparked by what investors believe is a shift in the American psyche.
There was, for generations, a certain magic to owning a home. No purchase was so sacrosanct, such a right, or so indicative of stability or success. Homeowners were keepers of neighborhoods and drivers of economies, their "nest eggs" encouraged through big tax breaks. After all, as the saying went, you could not lose money on a home.
Rarely was that thinking so rooted, or so flawed, as in the 2000s, when American homeownership soared to all-time highs. But the housing crisis cracked the illusion that a home was a sure investment. Over the last six years, as homeownership plunged to a 15-year low, the country lost half a million homeowners — and gained 5 million renters.
"The ownership society is suffering," Morgan Stanley analysts wrote in 2011, and the "often maligned U.S. rental housing market has begun a solid recovery."
Some of this shift is by necessity. Only a tenth of Americans who defaulted on a home loan got another within 10 years, Federal Reserve Bank of San Francisco economists said in October. That means millions of former homeowners could be renting for a decade. How's that for a captive audience?
A swelling "rentership society" has weakened the stigma that renters are reckless money-wasters, college students or underpaid. In Tampa Bay, two-thirds of renters are older than 35, and more than half are families, census data show. And renters come from every class; "luxury rental specialists," for example, cater to the South Tampa socialite crowd.
Families who suffered through foreclosure but feel they have outgrown apartments still want a home of their own. In 2006, Tampa Bay renters signed about 2,000 leases for single-family homes and condos, multiple-listing service data show. Last year, that stack grew past 16,000.
But renting, more than just a last resort, has become a lifestyle of choice. A survey released last month found that three out of four tenants planning to rent for five years did so because they enjoyed it or didn't want to own. Fewer than a third said they rented because they couldn't get a mortgage.
Some of that rental optimism stems from the changing tastes of millennials. As urban theorist Richard Florida tweeted, they are "rejecting (the) waste and debt" of conspicuous possession and ignoring their parents' platitudes about the pride of ownership. Writers for the Atlantic last year said "the Cheapest Generation . . . might never spend as lavishly as its parents did — nor on the same things."
The number of homeowners under 35 has plummeted since peaking in 2004, census data show. Nine out of 10 millennial renters told a Fannie Mae survey they eventually wanted to own a home, but worries over low wages and $1 trillion of student debt have led many to delay.
Young graduates said chaining themselves to a white picket fence would hurt their mobility and chances for a job. And some who lived through their parents' own housing crises find it hard to forget the past.
"I remember sitting there with (my mother), and the Realtor saying, 'It's an adjustable rate (mortgage), perfect for your profession,'" said Dana Williams, 21, a University of South Florida senior. "My mom lost her home because she couldn't afford to make the payments. I definitely realize how real that can be."
Many more investors have rushed to the local market to stake their claims. Beazer Homes USA, a national builder with homes in Hillsborough County mega-subdivision FishHawk Ranch, has competed at local foreclosure auctions for its $85 million "Pre-Owned Rental Homes" trust. Private investors are snatching at homes through hidden deals. And small firms and mom-and-pops continue to plug away, bemoaning big investors as "gobblers" with near-bottomless appetites.
The competition for inventory has become cutthroat, fast-paced and fueled by cash. Real estate agents pounce on new listings and scout the suburbs for hidden gems; house hunters wage bidding wars in foreclosure auctions; foreclosure brokers and short-sale gatekeepers find themselves courted for exclusive deals; and cheap-home wholesalers sell in bulk with promises of quick returns.
"We haven't put an offer on anything where there isn't at least 20 people bidding against us," said Matt Andrews, who owns Tampa home wholesaler ZMA Investments. "Everyone's trying to grab everything they can."
The most coveted homes are concrete-block three-bedroom-two-baths, priced around $150,000 and newly built in suburbia. Families and first-time homebuyers competing for the same homes routinely find themselves outmatched. Many of the homes never make it to typical listings; cash is king, and investors' buying power and deal-making gets them a leg up with, as Andrews said, "a wink and a nudge."
To preserve their competitive edge, some firms play their hands in secret, buying through shell companies and throwaway investment vehicles. They sometimes demand local agents and contractors sign confidentiality agreements.
Big-money investors don't wince at outspending the competition, saying selling the homes in several years could win them profits off a price recovery. A Hudson home sold for $60,000 in December, then resold the same day to Blackstone for $99,000 — a 65 percent markup.
"Finding inventory," said Shalimar Santiago, part of the group that resold the home. "That's the magic right now."
Outside Tampa Bay, Blackstone's Invitation Homes spent $25 million on more than 180 homes over the last year in Sarasota and Manatee counties, including a $350,000 home off the coast of Sarasota Bay. Toronto investors with Tricon Capital Group spent $25 million buying 250 South Florida homes. California-based Colony Capital, which owns 8,000 American homes, has bought across Tampa, Miami and Orlando, and Silver Bay executives said in an earnings call this month that they have expanded to Jacksonville and West Palm Beach.
Investors are targeting homes with laser precision, funneling rivers of home data into massive systems and spreadsheets: when the home was built, its property taxes, how long it sat empty, the quality of the local school district, how many cars will fit in the garage.
The information helps certify, to the dollar, that each home's rent will more than cover its costs: Every home becomes a monitored asset, and every renter a revenue stream. It's that level of microscopic control, investors said, that will help divine a jackpot from a bust.
Remodeling the dream
One morning last month, Corey Donahue, regional president of Blackstone's Invitation Homes, swung open the screen door of a new acquisition, a home bought for $137,000 at a foreclosure auction on Carrollwood's Redcliff Drive.
One bedroom's walls overflowed with tiny handprints traced in violet paint. Out back, a cage of wood and chicken wire covered the sickly-green swimming pool. Two soggy mattresses, perhaps from the married couple who owned this home for 25 years, decayed in the front lawn.
Donahue, cool and composed in black loafers, padded slowly from room to room with a sniper's eye for flaws: stained baseboards, drab lights, carpets "straight out of 1985." What the home had, though, was potential: A cookie-cutter in a nice school district, it was destined for an easy rent. On his iPad, he tapped at an estimate saying the home needed about $15,000 in work. A few days later, the remodel began.
Invitation Homes said it spends about 10 percent of each home's sale price fixing it up, injecting millions of dollars into a cottage industry of carpenters, electricians, painters and landscapers that saw business crumble during the bust.
Investors focus repairs on visual impact: Fresh tile or flooring, modern lights and appliances, new paint in neutral tones. Crews will resod front lawns, Donahue said, but rarely back yards.
Investors defend their remodels as more than cosmetic, though they're also careful not to "overimprove," spending more than the home stands to earn. Homes needing major structural fixes, like a new roof, are avoided as investment killers.
Overwhelmed by the speed of buying, some investor homes are warehoused for weeks, surrendered to overgrown lawns, dirt-caked garbage and months-old mail. But once workers step inside, they can often spin a home into "rent ready" within two or three weeks.
Vitaliy Vosmak, who oversees renovation crews for rental management firm Home Encounter, sleeps in his office, keeps a bag of clothes in his car and often loses time with Chloe, his 3-year-old daughter.
"She misses me," he said. But contractors are "desperate in this job market to make money. . . . The faster we can turn them around, the more money we make."
The dicey buys, the quick fixes, the brawls for best profits: Hasn't Tampa Bay played this game before? Recent home-price jumps are less a sign of recovery, some economists worry, and more a trap for a second crash.
"I hope to God they're doing it for the cash flow and not so much banking on appreciation in the future," said Michael Thompson, an investor in distressed assets with an office in St. Petersburg. "We've all seen over the last decade how that worked out for everybody."
What if investors read the market wrong? The hedge fund that helped kick-start big investors' home rentals, the Och-Ziff Capital Management Group, has already cashed out, selling its California homes after a year because rental revenues were weaker than expected.
Investors keep their financial details private and won't say how many of the homes they've rented. But local landlords predicted their monthly rents might be too high for tenants to stomach. About 90 percent of Invitation Homes' local online listings are more expensive than the average Tampa Bay rental home, at $1,200 a month. Their priciest rentals, including a five-bedroom FishHawk estate, would cost $36,000 a year.
"A lot of people have entered the market with incorrect expectations, expecting too deep of discounts, or being overly optimistic for what it will rent for," said Steve Oehlerking, president of Rent Solutions, a Tampa leasing and management firm. "Those deals out there . . . are drying up."
But investors said their unprecedented effort to fix eyesores could be just what neighborhoods need to shake off the crash. Often the home they buy had been left to rot, and was one of the worst on the street, said Mark Beisswanger, COO of Blackstone's Invitation Homes. "By fixing it up, all of the sudden, it's probably one of the best."
Smart-money investors are, as Beisswanger said, "not quick flippers . . . here to buy one day and sell the next." They're not signing for hulking mortgages or swiftly reselling like yesteryear's amateur flippers, and attorneys said they're taking care of homeowners association debts and old liens, a sign they're prepared to pay their dues.
But veteran landlords said buying is simple compared to property management, a chaotic business spiked with repair costs, renter problems and rude surprises. Even Warren Buffett conceded last year that management was an "enormous" obstacle with the potential to kill a deal.
"Unless they've got some magic in property management that none of the rest of us has picked up on, that's not going to be where their return on investment comes from," said Wayne Archer, executive director of the University of Florida's Bergstrom Center for Real Estate Studies. "They're really gambling totally on the appreciation. And in that sense, it's a fairly high-risk game."
Little of that matters to renters like the Berans. They know their property manager, they relish their pool guy and they love calling for repairs without fear of breaking the bank. Though smaller than the 5 acres they once owned, their surroundings are fresh, and they were thrilled to discover trails and waterways that coursed near their back yard.
Rather than miss her childhood home, Caitlin, their daughter, has become their biggest rental cheerleader. And though some friends were resistant at first, more and more have asked to see the Berans' four-bedroom home framed in stone and hardwood, saying they might want to try renting, too.
"It was tradition: You buy a home, you live there, you stay for the rest of your life," Susan Beran said. "But to us, a home is just . . . a thing. Even though we're renting, it's our home."
Contact Drew Harwell at (727) 893-8252 or firstname.lastname@example.org.