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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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CHOPPING BLOCK: Distressed houses go to the highest bidder at the Fulton County foreclosure auction in January. Real estate auctions are held the first Tuesday of every month at county courthouses around the state. - JOEFF DAVIS
  • Joeff Davis
  • CHOPPING BLOCK: Distressed houses go to the highest bidder at the Fulton County foreclosure auction in January. Real estate auctions are held the first Tuesday of every month at county courthouses around the state.

Back at the courthouse, teams of bidders circle the auctioneers, checking properties up for bid against a list of homes they've evaluated as worthy investments. Bidders carry binders with details about hundreds of properties, including the maximum they're willing to offer for each. If they win, another team member steps forward to pay in cashier's checks. Properties sold at auction have to be paid for on the spot, and investment firm reps often carry millions of dollars worth of vouchers in folders or locked bank bags.

"We usually spend about $30 million a month between all the counties in metro Atlanta," says Carlton Washington, a district manager that evaluates hundreds of prospective properties every month for Colony American Homes, one of the largest investors buying up Atlanta area houses. The firm aims to purchase 200-300 homes each month, at times picking up more or less depending on what's available. In October, the group made headlines for spending $15.5 million in a single month, nearly as much as its three previous auctions combined.

Collectively, firms like Colony, Waypoint, Blackstone Group LP, Silver Bay Realty, Sylvan Road Capital, and others are trying to drive at least a short-term economic recovery in an effort to capitalize on a steady and growing demand for rentals. Prices of distressed properties have already started to increase faster than anticipated, thanks in part to heavy buying at county foreclosure auctions around metro Atlanta. There are signs some firms plan to speed up purchases before rising prices cut into profits.

Blackstone Group, the largest private investor in real estate in the United States since the start of the recession in 2008, has ramped up purchases of homes to turn into rentals. The company owns 16,000 homes around the country, and spent more than $1 billion in 2012 alone to pad its inventory. It's currently seeking to double its line of credit from $600 million to $1.2 billion to help with purchases this year, according to Bloomberg.

Silver Bay Realty is spending more than $40 million a month to buy homes in Atlanta and a handful of other cities. While many of the firms are mum about their activities in the Atlanta area, national estimates show as much as $9 billion has been raised to buy as many as 90,000 homes, according to Keefe, Bruyette & Woods Inc., an investment banking firm known for its financial research. That money is being concentrated in a few major metro areas still reeling from the housing bubble's bust, including Atlanta, Miami, and Chicago.

Last year, Phoenix's rock-bottom housing prices proved a fertile testing ground for many of the same firms now active in Atlanta. Heavy buying in the Arizona capital helped drive home values up more than 30 percent between November 2011 and October 2012, according to a housing report from Arizona State University's business school. The gains boosted confidence among private investors willing to bet on an emerging and largely unproven business model.

Each company has its own process for evaluating homes and their communities. In Atlanta, most are focusing on high-demand properties in middle-income neighborhoods often located in the suburbs and northern parts of the city.

"Our model is focused on finding those neighborhoods where people want to live," says Robert Lee, co-founder of Sylvan Road Capital, a Duluth-based company with rental homes in 10 metro counties and plans to expand nationally this year. "We look for things like good school districts, lower crime rates, and areas people want to raise their families."

After purchasing a home, firms spend anywhere between $5,000-$60,000, and sometimes more, to fix up the property. Multiply that by the thousands of homes being scooped up, and it works out to a slew of renovation work for many construction workers who have struggled to find steady employment since the economy tanked.

"It's an aspect of our business I'm very happy to have," says Rick Porter, president of Richport Properties. For more than three decades the company specialized in building new homes, but was forced to find other ways to make money after the crash. Porter says it's hard to gauge, but he figures that renovation jobs for large firms now accounts for about 30 percent of his business. "How long it lasts is another part of the phenomena, and that I don't know."

How long it lasts, and what sort of long-term impacts it has on metro Atlanta, remain to be seen. For now, at least, market trends seem to have given investors the confidence — and investment firms the money — to push ahead.

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