We are undoubtedly living in bizarre times. We have professional investors buying single-family homes and families moving onto professional office buildings.
Ryan Dezember at The Wall Street Journal recently reported that if your selling a house these days there’s a good chance the buyer might be a pension fund. (WSJ)
- Investors are chasing yield right now. “From individuals with smartphones and a few thousand dollars to pensions and private-equity firms with billions, yield-chasing investors are snapping up single-family houses to rent out or flip.”
- This all started after 2008. “Financiers stepped in starting in 2011 and gobbled up foreclosed homes at steep discounts…They dominated the market for a few years, accounting for about a third of sales in some markets and setting a floor for falling prices.”
- Why this could be a problem. John Burns estimates that in some of the top markets roughly one in every five houses sold is bought by someone who never moves in. “You now have permanent capital competing with a young couple trying to buy a house…That’s going to make U.S. housing permanently more expensive,”
Professional investors buying residential real estate isn’t that abnormal, but professional office buildings being converted into residential real estate definitely is. Roger K. Lewis at The Washington Post wrote about this very bizarre situation this weekend. (WaPo)
- A solution to a problem. “Reduced demand for leased office space will reduce an office building’s market value, which depends entirely on leasing revenue…prospectively a path to insolvency and foreclosures.”
- The good news. Existing structural bones and sometimes the skins and roofs of office buildings can be saved and repurposed for housing. “Some buildings could even be adapted to a mixed-use conversion approach…”
- The bad news. “Because much office building square footage is far from exterior walls, conversion to housing may require modifying the basic building structure…Zoning regulations and building code constraints add another hurdle for office-to-housing conversion.”
We are truly living in bizarre times. Families can’t buy a home because professional investors are buying them all up. So instead they might move into the office buildings those same investors used to work in. Bizarre indeed.