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Big business bets billions on Atlanta's housing recovery

Could Wall Street's plan to buy up and rent out foreclosed homes boost hard-hit neighborhoods? Or inflate another housing bubble?

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GROWING PAINS: Waypoint Homes’ regional director David Zanaty stands in the corner of his Midtown Atlanta office. The firm has outgrown its current space since opening in Atlanta seven months ago.
  • Joeff Davis
  • GROWING PAINS: Waypoint Homes’ regional director David Zanaty stands in the corner of his Midtown Atlanta office. The firm has outgrown its current space since opening in Atlanta seven months ago.

David Zanaty sits in the corner of a Midtown high-rise office in upheaval. Half-filled boxes of staplers, paperwork, and other supplies lie next to partially dissembled furniture outside of his door. It's barely been six months since the 36-year-old took over as regional director for Waypoint Homes, a California-based investment company that recently expanded to Atlanta, but his branch has already managed to outgrow its space.

"I was with a division of AIG that went from over 20 people to three people," Zanaty says, referring to the bailed-out financial services giant. "Now, I'm at a company that went from one person to over 20 in Atlanta in just seven months." And it's ready to hire more.

Waypoint Homes is one of a handful of large investors that see opportunity in Atlanta's decimated housing market. The company is currently spending millions to buy up the glut of foreclosed and underpriced homes left in the wake of the economic downturn, fix them up, and rent them out. It already owns more than 3,000 properties around the United States, including an undisclosed number in metro Atlanta, and is working to acquire as many as 15,000 more in a handful of the country's major markets.

Banks seized more homes in Atlanta during 2012 than any other major metro area in the country, according to CoreLogic Inc., a company specializing in real estate data and analysis. Local home values showed some signs of improvement in 2012, posting the first gains in more than two years in September, according to an S&P/Case Shiller report. But at the end of 2012, houses in the metro area were still about 30 percent cheaper than the national average, according to Zillow.

"Basically, you can buy homes right now for less than it cost to build them," Zanaty says. "That's an important measure for investment. It means you own something intrinsically worth more than you paid for it."

About half a dozen other large investment firms like Waypoint are betting big on housing in metro Atlanta, spending millions of dollars monthly to purchase homes from auctions, trustee sales, banks, and listings services for less than they think they're worth. In the short term, the companies plan to rent and manage the properties, pay back investors with money from rental incomes, and eventually start selling off the homes in a few years after home values have increased.

Firms have also talked about offering rental incomes as securities to be traded on Wall Street, a practice similar to the mortgage-backed securities that went awry and contributed to the housing bust of the 2000s. Some investment analysts expect to see the first rental securities hit the market in early 2013, but they have yet to materialize.

The practice by large real estate investors of flipping homes for a quick buck is nothing new. But renting and managing properties has also long been the realm of mom-and-pop landlords who rarely have the means to expand beyond a couple dozen homes. With big business comes the prospect of big change. By quickly removing thousands of foreclosed homes from the market and turning them into rentals, these firms could potentially jump-start the slogging local economy, increase home values, and begin to rebuild communities in neighborhoods racked by vacant properties. But this real-life game of Monopoly has also attracted the attention of activists and other community advocates who say that the negative effects could outweigh the positive. They fear that some of the same executives involved in the devastating housing crisis are now laying the groundwork for another real estate bubble.

On a brisk January morning, more than 100 people stood on the steps of the Fulton County courthouse looking to buy a house. Once a month, flippers, investors, and aspiring homeowners hungry for a deal flock to courthouse steps across the state to purchase foreclosed and distressed homes up for auction. In the last year, however, some unfamiliar faces have joined the auction masses, often driving up prices and baffling long-time buyers by the amounts they're willing to pay. At times, they shell out more than market value for homes they're after.

"When we start getting into cases where they pay above market value I think it's just sloppy investment," says Elizabeth Warren, 29, an Atlanta native who has been buying, fixing, and flipping a small number of houses each month for more than a decade. Warren used to pick up an average of four or five houses at county auctions each month, but since investment firms started bidding over the summer, she and other buyers unwilling to pay the higher prices have scaled back their work. "I don't agree with their speculation about the market turning around so quickly. A lot of their model deals with speculation, and that's kind of how we got into this mess in the first place," she says.

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