This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Single-Family REIT IPOs Are Risky Bet

Stocks in this article: CLNY SBY OAK ARPI BX

Already two big players have exited the market. Last year, hedge fund Och Ziff (OZ), one of the early entrants into the business, called it quits. And now it appears Carrington Holding is also pulling out of the business, according to Bloomberg News.

Chief Executive Bruce Rose, who raised $450 million for the business from Oaktree Capital (OAK) last year told Bloomberg that returns were not adequate to continue investing. "There's a lot of -- bluntly -- stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible," the report quoted him saying.

Indeed, the early entrants to this business face enormous challenges.

Good Yield Is So Hard To Find

Institutional investors are already finding it hard to acquire properties at good prices. Most players are chasing the same properties in the same cities, creating bidding wars that automatically lower potential yield.

Properties can be purchased in bulk only in places where there is abundant supply of foreclosed homes, so almost all players in the business are actively bidding in cities such as Phoenix, Las Vegas, Atlanta, Tampa and parts of California, which is why we are seeing a strong rebound in home prices in these markets.

Most players need to limit their buying to a few cities simply for operational reasons. Managing a widely-dispersed group of single-family homes is an operational nightmare.

In the case of multi-family homes, a number of units are clustered into a single building, lowering the cost of maintenance. But imagine having to handle, say, the plumbing issues of a thousand homes spread all across Atlanta.

"You need a management infrastructure that is much more diffused in the case of single-family homes ," said Aronson. The attorney believes operational difficulties will ultimately trip up bulk investors who lack experience in property management. "People who rent don't take anywhere near the care of a house compared to those who own."

Many big investors are working with property management companies, but that means they are likely giving up some of the yield to management fees. Others are building their own management infrastructure, but that is going to take time to scale up.

3 of 5

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs