Key Pillar Of Housing "Recovery" Cracks As Private Equity Becomes Marginal Seller

With mortgage applications down around 60% from their peak in April, the last best hope for sustained "recovery" in housing 'was' the cash-only bid from private equity and hedge capital in the REO-to-rent or flip-dat-house trades. As we have noted previously, that last pillar was starting to falter and as Bloomberg reports, it seems is now in full crack mode as Carlyle Group switches from marginal buyer to marginal seller in its $2.3 billion real estate funds. "Our capital was useful at the front edge of the recovery," the firm notes - implying the big gains are over as rent growth fades (as employment and income growth slows). Crucially, they add, "investors really want the new Class A properties so we’re selling into that demand." We assume that by "investors" they mean greater-fool bag-holders.


Via Bloomberg,

Carlyle Group LP, the private-equity firm with more than a third of its $2.3 billion U.S. real estate fund in apartments, is reducing holdings of multifamily housing as rent growth slows from a post-recession surge.

 

The company is considering apartment sales as rising construction reduces multifamily shortages and price gains for rental properties make them less attractive for private-equity firms that seek returns of 20 percent or more.

 

...

 

“Our capital was useful at the front edge of the recovery.” [in other words, we sparked the bubble and now we want out]

 

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Apartment-rent growth is slowing as the U.S. homebuying market rebounds and a wave of multifamily building adds to supply. In the third quarter, tenants on average paid 3 percent more than a year earlier after landlord concessions, down from 3.9 percent annual growth in effective rents in 2012

 

...

 

“This remains well below what one would usually expect given such a low national vacancy rate,” Ryan Severino, senior economist at Reis, said in the report. “This reflects continued modest employment and income growth.”

 

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“Investors really want the new Class A properties so we’re selling into that demand,” Stuckey said.

 

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“Our basic view is we’re in a low-growth environment,”

So it seems, just as with Private Equity using the exuberance to IPO its corporate holdings, they are seeing the opportunity to sell into this strength in real estate - hardly a sign that the housing recovery hopes are sustainable (especially in the new echo bubbles)...