‘SQUEEZED OUT’: Corporate investors swoop into Bartholomew County’s housing market

Corporate investors have squeezed into Bartholomew County’s tight housing market, buying up dozens of homes and turning them into rentals in what analysts say is a nationwide trend that is making it harder for many first-time buyers to find their slice of the American Dream.

So far this year, a web of companies with ties to Toronto-based Tricon Residential Inc. have bought 38 homes in Bartholomew County — including 19 in the Shadow Creek Farms neighborhood — in some cases paying around $70,000 to $100,000 more than the assessed value to acquire the properties, according to real estate records.

The companies — each starting with the prefix “SFR JV-2” — are part of a joint venture between Tricon, the Teacher Retirement System of Texas, Pacific Life Insurance Co. and an undisclosed foreign investor to “assemble a portfolio of single-family rental homes” in the United States, according to regulatory filings and reports from credit rating agencies.

Another group of companies with ties to Tricon starting with prefixes “SFR JV-1” and “SFR JV-HD” also have been purchasing homes in Bartholomew County.

Tricon is one of America’s biggest landlords, owning about 30,000 single-family rental homes in the United States. Investment fund Blackstone Group, the largest owner of commercial real estate in the world, is one of Tricon’s biggest investors.

Over the past two years, companies linked to Tricon have bought 59 single-family homes in Bartholomew County for a total $15 million, local real estate records show. During that time, the companies have spent $8.2 million to acquire 33 homes in the Shadow Creek Farms neighborhood located near W. County Road 200 S. and Interstate 65.

In addition, the companies have bought nine homes for $2.26 million in the Northbrook neighborhood near Columbus Municipal Airport and six others for $1.61 million in the Broadmoor neighborhood north of National Road between Central Avenue and Middle Road.

Real estate analysts say the recent influx of institutional investors in Bartholomew County’s housing market reflects a trend that has been playing out across the United States as an “unprecedented housing market” has fueled the companies’ appetite for single-family homes.

The companies — private equity firms, real estate investment trusts, pension funds, sovereign wealth funds, among others — are unwelcome players in the market for many first-time homebuyers, who are already facing stiff competition for affordable homes and often can’t compete with big-pocketed companies that can make all-cash offers and forgo inspections or other due diligence.

“It’s a national trend that (institutional investors) are consuming more of the market,” said Sara Coers, associate director of the IU Center for Real Estate Studies. “…They’re acquiring big chunks of neighborhoods, entire neighborhoods. There are actually developers who are developing for-rent neighborhoods.”

“They’re really squeezing out first-time buyers more than anything,” Coers added. “…It’s basically turning everything that would have been an affordable homeownership situation into a rental situation.”

‘Unprecedented housing market’

Investors’ shift toward single-family rentals marks a departure from what real estate investment trusts and other investors have traditionally poured their money into — commercial real estate, including apartments, analysts said.

These companies and other investors started eyeing previously owned single-family homes during the depths of the housing bust in the mid-2000s, gobbling up foreclosed properties at bargain prices, often by the thousands, The Associated Press reported. Many of the properties were converted to rentals.

At the same time, banks stopped lending on new construction, people stopped building houses and developing new neighborhoods and building permits dipped substantially across the country, including in Indiana, which helped lay the foundation for an “unprecedented supply-demand imbalance,” Coers said.

Even though the housing market has more than bounced back since then, a dearth of homes for sale and surging demand for rental housing has motivated Wall Street to stake its investment on renting single-family homes, rather than selling them in a housing market thirsty for inventory, according to wire reports.

The COVID-19 pandemic also has further fueled demand for single-family homes.

In Bartholomew County, the median sale price of homes has risen dramatically during the pandemic, reaching $273,000 during a four-week period from June 27 to July 24, up from $252,000 during roughly the same period last year and $190,000 in 2019, according to data from real estate company Redfin.

The institutional investors, for their part, are betting that would-be homebuyers frustrated by the priciest housing market in decades will settle for renting their slice of the American Dream.

Many people who are currently renting single-family homes in Indiana are paying upwards of $2,200 to $2,400 per month even though they could have had a monthly mortgage payment of around $600 to $700 for the same home a year ago, Coers said. Though people are paying “substantially more” to live in those homes, people “are just making it work because they don’t have any other options,” she said.

In Bartholomew County, some single-family homes are renting for similar prices, according to listings on Tricon’s website.

For example, a 2,361-square-foot, three-bedroom home in Shadow Creek Farms owned by a Tricon-linked company was renting at $2,199 per month as of Friday. The house was bought by a local resident for $219,945 in October 2019 and was sold to Tricon’s joint venture this past June for $305,000 — $85,000 more than the home’s assessed value.

In addition, a 1,228-square-foot, three-bedroom home on the northside of Columbus purchased by a Tricon-linked company was renting at $1,499 per month, according to Tricon’s website. That same home was purchased by a family for $179,000 in April 2021 only to be sold a year later to the joint venture for $240,000, local real estate records show.

But despite the price tag to rent these homes, Tricon, as well as competitors American Homes 4 Rent and Invitation Homes Inc., have reported record occupancy rates since the pandemic hit.

On Wednesday, Tricon reported a record 98.3% same-home occupancy rate during the April-June quarter this year, according to regulatory filings. The company sees a “significant runway for growth” in the single-home rental market, hoping to expand its portfolio to 50,000 by the end of 2024, according to the company’s most recent annual report.

“They’re crowding out the people’s ability to buy a home, so those people then become renters, and they’re often forced into housing that is an increasingly larger portion of what they earn in a given year. It’s pushing people’s housing costs much higher,” Coers said. “But they are finding (tenants) because people need a place to live, and if they can’t compete in the housing market because there’s just simply not enough supply, they become renters, and they’re still going to want that same home … but they just have to do it at a substantially higher price point as renters.”

“Even with interest rates rising, homeowners would get a substantially better deal if they could buy those houses at what used to be typical market prices and get market financing,” Coers said.

Overall concerns

The influx in big investors buying up single-family homes also has raised a number of concerns among housing advocates who say the trend is contributing to rising costs. They argue that the companies are constraining the supply of homes for sale when they buy them and convert them into rentals, resulting in increased competition as the same number of buyers vie for the remaining homes on the market.

The Fair Housing Center of Central Indiana and advocacy group Prosperity Indiana say they have seen similar trends in other other communities in Indiana.

“I’ve heard the same story from Evansville to South Bend, and now Columbus,” said Andrew Bradley, policy director of Prosperity Indiana, adding that the number of purchases in Bartholomew County has the potential to be “disruptive to neighborhoods and the whole community.”

Amy Nelson, executive director of the Fair Housing Center of Central Indiana, said she has seen a similar trend in Marion County, particularly in some Black neighborhoods. Nelson said she believes institutional investors are “playing a role” in rising housing costs, though there are a number of other factors at work.

“We were seeing investors coming in purchasing those affordable homes and flipping them over into expensive rentals,” Nelson said. “So then people who may normally have been able to purchase those homes and become homeowners lost the ability to do that, and had to stay in rentals, and very well, maybe having to rent those very homes at much higher prices than they could have bought them for.”

Other concerns include that an increase in real estate transactions in a neighborhood could potentially drive up property taxes in the area, potentially pricing out some long-term residents, Coers said. In addition, investors may not have the same level of motivation to care for the home as a homeowner would.

“We see homes depreciate faster, experience more physical issues, such as maybe they don’t paint the exterior as frequently as a homeowner would have, and if (the home) is wood, it ages,” Coers said. “We see more houses sort of become rundown, which can have a negative impact on a neighborhood.”

Tricon did not respond to a request for comment on its operations in Bartholomew County. However, the company’s president and CEO, Gary Berman, has said the rise in housing costs can’t just be pinned on institutional investors, telling CBS’s 60 Minutes earlier this year that “corporate landlords represent 2% of all single-family rental housing. So there’s a lot more going on than just corporate landlords bidding up homes. It’s a very competitive and difficult environment.”

However, solutions for the current market dynamic are hard to come by, Coers said. One one hand, “we don’t necessarily want to tell people, ‘you can’t sell to somebody and maximize your dollar,’” but selling lots of homes investors means fewer and fewer people can be homeowners, Coers said.

“When you have more competition for less supply, really we have no choice but to build more units to fix that situation, but no one can feasibly with today’s cost build a home that matches (the under $300,000) price point. So, we’re relying on existing housing stock, which is aging. I don’t think it’s sustainable, but I also don’t see what the solution is.”

“Unless someone can figure out how to build a cheaper home that still serves the market and reaches market utility, but can be under that $300,000 price point, if they can flood the market with those homes, maybe we have a chance,” Coers said. “But unfortunately, they’re flooding them directly into investors’ hands.”