Hedge funds and investment firms are buying up Florida foreclosures, beating out homebuyers and local flippers, while steering the state into what some fear is another real estate bubble.
The companies, including New York-based Blackstone Group and Lake Success Rentals, a partner of Toronto-based Tricon Capital Group, purchased an estimated 5,300 Florida homes last year that were in some stage of foreclosure, according to a report from RealtyTrac.
In Palm Beach County, RealtyTrac measured 425 purchases by firms buying multiple properties out of foreclosure and usually with the intent to rent them out until increasing property values can offer a substantial return on investment.
RealtyTrac Vice President Daren Blomquist said the buying trend accelerated around the second quarter of 2012 after billionaire business magnate Warren Buffett said he would buy up “a couple hundred thousand” single-family homes if he had a way to manage them.
But Blomquist warned that prices jacked up by the increased competition could lead to an artificial inflation.
“There is some potential for locally based housing price bubbles because of this almost frenzy on the part of these big-money folks to purchase as many properties as they can,” he said. “They’re paying cash, so it shouldn’t result in a lot of foreclosures, but it may be that down the road, they decide the gamble isn’t paying off and flood the market with properties.”
Florida’s biggest buyer last year was Malibu, Calif.-based American Homes for Rent, with more than 260 purchases, according to RealtyTrac. The Blackstone Group-related company THR Florida, LLC, had more than 160 purchases.
But both of those companies focused their efforts mostly in areas outside of South Florida.
Heavy hitters locally include Lake Success Rentals, based in Fort Lauderdale, and Southeast Florida Rental Housing (Sfrh SF Rental), which shares the same Fort Lauderdale address as Lake Success.
In July, Tricon Capital Group announced its partnership with Lake Success in an aggressive push to buy more distressed real estate. Tricon, which says it has $1.2 billion of assets under management, provides financing to local companies to buy the homes.
“I expect Miami to be one of the fastest-growing cities in the next decade, and the opportunity to purchase homes for rental housing in the surrounding areas at a fraction of peak prices and replacement cost was very attractive to me,” said Lake Success co-founder Barry Bergman in a news release announcing the partnership.
Last month, Tricon announced the purchase of 550 homes in Charlotte, N.C., for $26 million.
Blomquist said RealtyTrac’s study compared active foreclosures against sales deed data and may not include all bulk buyers in an area.
Don Cameron, a real estate investor who owns a South Florida franchise of We Buy Ugly Houses, said he bought more than 100 homes last year, many of which were at foreclosure auction, but he is not included in RealtyTrac’s report.
Also not included is a Greenwich, Conn.-based company called SRP SUB, LLC, which has bought about 40 Palm Beach County homes at foreclosure auction since November.
Cameron said he noticed an increase in competition from the big-time investment firms and hedge funds about eight months ago. His company buys homes, renovates them and then sells them. He said he’s lost out on homes because the larger firms pay asking price, or higher.
“They just have loads of money and are paying maximum dollars for the properties then renting them out,” Cameron said. “Some people are really inflating the market right now.”
Single-family home prices in Palm Beach County increased about 10 percent in 2012 from the previous year to a median of $212,000. Condominium and townhome sale prices were up 13 percent last year to $88,000, according to the Realtors Association of the Palm Beaches.