Existing law establishes the Department of Business Oversight within the Business, Consumer Services, and Housing Agency.

Existing law, the Economic Revitalization Act, establishes the Governors Office of Business and Economic Development, also known as GO-Biz, under the control of a director. Existing law requires GO-Biz to serve the Governor as the lead entity for economic strategy and authorizes it to undertake specified activities, including marketing business and investment opportunities in California by working in partnership with local, regional, federal, and other state public and private institutions.

This bill would require an institutional investor, as defined, to register by July 1, 2019, and annually thereafter, with the Department of Business Oversight by providing a statement containing certain information, including, among other things, the total number of single-family homes in the state that are owned by the institutional investor, including the number owned in each county, and the number occupied by renters throughout the state, and in each county. The bill would authorize the department to charge a reasonable fee to process the registration. The bill would require the department to submit a report to the Legislature by July 1, 2020, and annually thereafter, regarding the information collected from institutional investors during the prior calendar year pursuant to the provisions of this bill.

Existing law establishes the Department of Business Oversight within the Business, Consumer Services, and Housing Agency.

Existing law, the Economic Revitalization Act, establishes the Governors Office of Business and Economic Development, also known as GO-Biz, under the control of a director. Existing law requires GO-Biz to serve the Governor as the lead entity for economic strategy and authorizes it to undertake specified activities, including marketing business and investment opportunities in California by working in partnership with local, regional, federal, and other state public and private institutions.

This bill would require an institutional investor, as defined, to register by July 1, 2019, and annually thereafter, with the Department of Business Oversight by providing a statement containing certain information, including, among other things, the total number of single-family homes in the state that are owned by the institutional investor, including the number owned in each county, and the number occupied by renters throughout the state, and in each county. The bill would authorize the department to charge a reasonable fee to process the registration. The bill would require the department to submit a report to the Legislature by July 1, 2020, and annually thereafter, regarding the information collected from institutional investors during the prior calendar year pursuant to the provisions of this bill.

Existing law establishes the Department of Business Oversight within the Business, Consumer Services, and Housing Agency.

Existing law, the Economic Revitalization Act, establishes the Governors Office of Business and Economic Development, also known as GO-Biz, under the control of a director. Existing law requires GO-Biz to serve the Governor as the lead entity for economic strategy and authorizes it to undertake specified activities, including marketing business and investment opportunities in California by working in partnership with local, regional, federal, and other state public and private institutions.

This bill would require an institutional investor, as defined, to register by July 1, 2018, 2019, and annually thereafter, with the Department of Business Oversight by providing a statement containing certain information, including, among other things, the total number of single-family homes in the state that are owned by the institutional investor, including the number owned in each county, and the number occupied by renters throughout the state, and in each county. The bill would authorize the department to charge a reasonable fee to process the registration. The bill would require the department to submit a report to the Legislature by July 1, 2019, 2020, and annually thereafter, regarding the information collected from institutional investors during the prior calendar year pursuant to the provisions of this bill.

Existing law establishes the Department of Business Oversight within the Business, Consumer Services, and Housing Agency.

Existing law, the Economic Revitalization Act, establishes the Governors Office of Business and Economic Development, also known as GO-Biz, under the control of a director. Existing law requires GO-Biz to serve the Governor as the lead entity for economic strategy and authorizes it to undertake specified activities, including marketing business and investment opportunities in California by working in partnership with local, regional, federal, and other state public and private institutions.

This bill would require an institutional investor, as defined, to register by July 1, 2018, and annually thereafter, with the Department of Business Oversight by providing a statement containing certain information, including, among other things, the total number of residential properties single-family homes in the state that are owned by the institutional investor, the total number of those residential properties occupied by renters, and the total number of residential properties owned by the institutional investor in each county. including the number owned in each county, and the number occupied by renters throughout the state, and in each county. The bill would authorize the department to charge a reasonable fee to process the registration. The bill would require the department to submit a report to the Legislature by December 1, 2018, July 1, 2019, and annually thereafter, regarding the information collected from institutional investors during the prior calendar year pursuant to the provisions of this bill.

Existing law establishes the Department of Business Oversight within the Business, Consumer Services, and Housing Agency.

Existing law, the Economic Revitalization Act, establishes the Governors Office of Business and Economic Development, also known as GO-Biz, under the control of a director. Existing law requires GO-Biz to serve the Governor as the lead entity for economic strategy and authorizes it to undertake specified activities, including marketing business and investment opportunities in California by working in partnership with local, regional, federal, and other state public and private institutions.

This bill would require an institutional investor, as defined, to register by July 1, 2018, and annually thereafter, with the Department of Business Oversight by providing a statement containing certain information, including, among other things, the total number of residential properties in the state that are owned by the institutional investor, the total number of those residential properties occupied by renters, and the total number of residential properties owned by the institutional investor in each county. The bill would authorize the department to charge a reasonable fee to process the registration. The bill would require the department to submit a report to the Legislature by December 1, 2018, and annually thereafter, regarding the information collected from institutional investors pursuant to the provisions of this bill.

Existing law establishes the Department of Business Oversight within the Business, Consumer Services, and Housing Agency.

Existing law, the Economic Revitalization Act, establishes the Governors Office of Business and Economic Development, also known as GO-Biz, under the control of a director. Existing law requires GO-Biz to serve the Governor as the lead entity for economic strategy and authorizes it to undertake specified activities, including marketing business and investment opportunities in California by working in partnership with local, regional, federal, and other state public and private institutions.

This bill would require an institutional investor, defined as a company or corporation that owns more than 20 residential properties with a total value of more than $10,000,000 in the state, as defined, to register with the Department of Business Oversight by providing a statement containing certain information, including, among other things, the total number of residential properties in the state that are owned by the institutional investor, the total number of those residential properties occupied by renters, and the total number of residential properties owned by the institutional investor in each county. The bill would authorize the department to charge a reasonable fee to process the registration.

Existing law, the Planning and Zoning Law, requires cities and counties to prepare and adopt a general plan for their jurisdictions that contains certain mandatory elements, including a housing element. Existing law requires the housing element to include, among other things, an inventory of land suitable for residential development and to make adequate provision for the existing and projected needs of all economic segments of the community. Existing law states legislative findings declaring that the preservation and enhancement of opportunities for home ownership are beneficial to the well-being and prosperity of the people of the state.

This bill would declare the intent of the Legislature to enact legislation to address the impacts on the real estate market in California of the investment activities of large-scale buy-to-rent investors in the state and would make various findings and declarations in this regard.

GOVERNOR'S VETO

GV Bill Id:AB 354

Author:(Calderon)

As Enrolled Ver:September 10, 2018

2/3 vote

Original Committee Reference: B. & F.

SUMMARY: Requires institutional investors, as defined, to register with the Department of Business Oversight (DBO) by providing a statement containing specified information. Specifically, this bill:

1. Defines "institutional investor" as a company or corporation that owns more than 100 single-family homes with a total value of more than $10 million in the state.
2. Allows DBO to charge a reasonable fee to administer the registration program.
3. Requires institutional investors to provide information including, but not limited to:
   1. The total number of single-family homes in the state that are owned by the institutional investor, including the number that are owned in each county, and the number that are occupied by renters throughout the state, and in each county.
   2. The total number of single-family homes in the state annually purchased by the institutional investor.
   3. The total number of offers to purchase single-family homes in the state made by the institutional investor.
   4. The total dollar value of single-family homes owned by the institutional investor in the state and the total dollar value of single-family homes owned by the institutional investor that are occupied by renters.
   5. The total number of single-family homes that are sold to existing tenants.
4. Requires DBO to submit a report to the Legislature by December 1, 2020, and annually thereafter, as specified.

The Senate amendments removed the term "residential property" and replaced it with "single-family home." Additional amendments were technical and clarifying in nature.

EXISTING LAW: Provides legislative findings and declarations that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state (Health and Safety Code Section 50001).

FISCAL EFFECT: The Senate Appropriations Committee found the fiscal impact to be:

1. One-time, potentially significant costs to DBO to develop a database to store the data received from institutional investors. (special fund)
2. Ongoing costs in the low hundreds of thousands of dollars for increased workload to collect the data, maintain the database, and prepare the administrative report. (special fund)
3. Potential revenue from administrative fees authorized by this bill. The costs for creating the database and the increased workload could be at least partially offset by the fees. (special fund)
4. Unknown potential cost pressures for DBO depending on whether the department analyzes the data it will collect and the findings of any such analysis. (special fund)

COMMENTS:

1. Need for the bill: According to the author's office:

Over the last few years, institutional investors, such as Blackstone, have bought up billions of dollars-worth of single-family homes. Instead of renovating and reselling them or just waiting for the real estate market to recover, they have converted these properties into permanent rental homes. Of the five largest metropolitan areas in the U.S. where concentration of this type of investment is highest, three of them reside in California: Los Angeles, Riverside, and Sacramento.

At the time, the vast majority of these purchases were foreclosures or short sales; however, purchases of homes coming from natural sales have recently increased. The CEO of Colony American Homes, which is one of the largest single-family landlords in the country, said it himself, "the first phase was distressed homes, the second phase is acquiring homes in a more regular way." In October 2013, an institutional investor created the first triple-A-rated, mortgage-backed security supported by revenue from single-family rental properties. The emergence of a new form of mortgage-backed securities tied to single-family rentals is certain to have an impact on the housing market, communities, and tenants. A mortgage-backed security is created by pooling assets together and then selling interests in that pool to investors, who then receive regular payments from the asset pool. This process provides access to a much larger pool of investors than would otherwise be feasible, increasing liquidity and generally providing a less expensive source of funding than traditional borrowing from banks or private investors.

While institutional investors only represent a fraction of those in the housing market – midsized companies and small mom-and-pop investors who own less than 10 properties have historically been far more prevalent in most markets – securitization is likely to shift this balance. That being said, one institutional investor, Blackstone, has already become the largest single-family home owner in the country. In fact, some analysts predict the funding of single-family rental acquisitions through securitization will likely become a dominant model quickly, and thus, continuing to shrink the already short supply of homes.

Currently, there is nothing preventing institutional investors from continuing to buy as many single family homes as possible, typically three bedrooms and two baths. Leaving this area of law vacant has already limited the ability of low and moderate households the ability to buy a home that are now starting to get back on their feet. Families already have a difficult time trying to save up enough money for a down payment, having to compete against an institutional investor who has the financial backing of big banks and pension funds, just isn't fair from both a monetary standpoint and technological. For example, Oakland-based Starwood Waypoint said it has cut the time it takes to calculate a first bid on a house to eight minutes. The CEO stated, "We encourage our guys to make an offer before they see the house. I don't want to wait for anyone else. Our competitors are also fast."

The foreclosure crisis created massive inventories of foreclosure properties across the nation. Many of these foreclosed homes continue to find their way onto the housing market. Mortgage backed securities (MBS), the bundling of mortgages into a single financial instrument, contributed significantly to the housing bubble collapse that swept across the country. With MBS's currently out of favor, institutional investors are seeking other ways of investing in the housing market. The solution came in the form of investing in large portfolios of foreclosed homes and securitizing the rental income. The structure of various single-family rental securitizations (SFRS) is very similar to bonds issued from a single loan that are backed by portfolios of SFRS. The bonds typically have terms of two to three years with options for one-year extensions capped at five years total.

1. Impacts: What is the impact of large scale rental investment strategies on the housing market? According to Department of Finance data, California has over nine million single family homes. The estimated portfolio of homes turned to rentals owned by Invitation Homes, a subsidiary of Blackstone, is around 10,000 to 12,000 in California. The impact of rental securitizations on home prices is unclear. Projected occupancy rates and subsequent rental income has not lived up to expectations. Despite this, significant capital continues to flow into these investment opportunities.

Data: In as much as the impact of large scale rental investment strategies on the housing market are unclear, this bill seeks to improve the data and information provided to the Legislature in order to better guide future policy decisions.

GOVERNOR'S VETO MESSAGE:

This bill requires institutional investors that own more than one hundred single-family homes to register with the Department of Business Oversight by July 1, 2019 and for the Department to collect information about renters and private sales.

This bill is beyond the expertise and jurisdiction of the Department of Business Oversight. Even if the Department collected all the information about institutional investors, the number of renters living in the investor owned properties and private sales to existing tenants, collecting the data would not stop the purchase of these homes by private investors.

Analysis Prepared by: William Herms / B. & F. / (916) 319-3081 FN: 0005337

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 354

Author:(Calderon)

As Amended Ver:August 17, 2018

Majority vote

Original Committee Reference: B. & F.

SUMMARY: Requires institutional investors, as defined, to register with the Department of Business Oversight (DBO) by providing a statement containing specified information. Specifically, this bill:

1. Defines "institutional investor" as a company or corporation that owns more than 100 single-family homes with a total value of more than $10 million in the state.
2. Allows DBO to charge a reasonable fee to administer the registration program.
3. Requires institutional investors to provide information including, but not limited to:
   1. The total number of single-family homes in the state that are owned by the institutional investor, including the number that are owned in each county, and the number that are occupied by renters throughout the state, and in each county.
   2. The total number of single-family homes in the state annually purchased by the institutional investor.
   3. The total number of offers to purchase single-family homes in the state made by the institutional investor.
   4. The total dollar value of single-family homes owned by the institutional investor in the state and the total dollar value of single-family homes owned by the institutional investor that are occupied by renters.
   5. The total number of single-family homes that are sold to existing tenants.
4. Requires DBO to submit a report to the Legislature by December 1, 2020, and annually thereafter, as specified.

The Senate amendments removed the term "residential property" and replaced it with "single-family home." Additional amendments were technical and clarifying in nature.

EXISTING LAW: Provides legislative findings and declarations that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state (Health and Safety Code Section 50001).

FISCAL EFFECT: The Senate Appropriations Committee found the fiscal impact to be:

1. One-time, potentially significant costs to DBO to develop a database to store the data received from institutional investors. (special fund)
2. Ongoing costs in the low hundreds of thousands of dollars for increased workload to collect the data, maintain the database, and prepare the administrative report. (special fund)
3. Potential revenue from administrative fees authorized by this bill. The costs for creating the database and the increased workload could be at least partially offset by the fees. (special fund)
4. Unknown potential cost pressures for DBO depending on whether the department analyzes the data it will collect and the findings of any such analysis. (special fund)

COMMENTS:

1. Need for the bill: According to the author's office:

Over the last few years, institutional investors, such as Blackstone, have bought up billions of dollars-worth of single-family homes. Instead of renovating and reselling them or just waiting for the real estate market to recover, they have converted these properties into permanent rental homes. Of the five largest metropolitan areas in the U.S. where concentration of this type of investment is highest, three of them reside in California: Los Angeles, Riverside, and Sacramento.

At the time, the vast majority of these purchases were foreclosures or short sales; however, purchases of homes coming from natural sales have recently increased. The CEO of Colony American Homes, which is one of the largest single-family landlords in the country, said it himself, "the first phase was distressed homes, the second phase is acquiring homes in a more regular way." In October 2013, an institutional investor created the first triple-A-rated, mortgage-backed security supported by revenue from single-family rental properties. The emergence of a new form of mortgage-backed securities tied to single-family rentals is certain to have an impact on the housing market, communities, and tenants. A mortgage-backed security is created by pooling assets together and then selling interests in that pool to investors, who then receive regular payments from the asset pool. This process provides access to a much larger pool of investors than would otherwise be feasible, increasing liquidity and generally providing a less expensive source of funding than traditional borrowing from banks or private investors.

While institutional investors only represent a fraction of those in the housing market – midsized companies and small mom-and-pop investors who own less than 10 properties have historically been far more prevalent in most markets – securitization is likely to shift this balance. That being said, one institutional investor, Blackstone, has already become the largest single-family home owner in the country. In fact, some analysts predict the funding of single-family rental acquisitions through securitization will likely become a dominant model quickly, and thus, continuing to shrink the already short supply of homes.

Currently, there is nothing preventing institutional investors from continuing to buy as many single family homes as possible, typically three bedrooms and two baths. Leaving this area of law vacant has already limited the ability of low and moderate households the ability to buy a home that are now starting to get back on their feet. Families already have a difficult time trying to save up enough money for a down payment, having to compete against an institutional investor who has the financial backing of big banks and pension funds, just isn't fair from both a monetary standpoint and technological. For example, Oakland-based Starwood Waypoint said it has cut the time it takes to calculate a first bid on a house to eight minutes. The CEO stated, "We encourage our guys to make an offer before they see the house. I don't want to wait for anyone else. Our competitors are also fast."

The foreclosure crisis created massive inventories of foreclosure properties across the nation. Many of these foreclosed homes continue to find their way onto the housing market. Mortgage backed securities (MBS), the bundling of mortgages into a single financial instrument, contributed significantly to the housing bubble collapse that swept across the country. With MBS's currently out of favor, institutional investors are seeking other ways of investing in the housing market. The solution came in the form of investing in large portfolios of foreclosed homes and securitizing the rental income. The structure of various single-family rental securitizations (SFRS) is very similar to bonds issued from a single loan that are backed by portfolios of SFRS. The bonds typically have terms of two to three years with options for one-year extensions capped at five years total.

1. Impacts: What is the impact of large scale rental investment strategies on the housing market? According to Department of Finance data, California has over nine million single family homes. The estimated portfolio of homes turned to rentals owned by Invitation Homes, a subsidiary of Blackstone, is around 10,000 to 12,000 in California. The impact of rental securitizations on home prices is unclear. Projected occupancy rates and subsequent rental income has not lived up to expectations. Despite this, significant capital continues to flow into these investment opportunities.
2. Data: In as much as the impact of large scale rental investment strategies on the housing market are unclear, this bill seeks to improve the data and information provided to the Legislature in order to better guide future policy decisions.

Analysis Prepared by: William Herms / B. & F. / (916) 319-3081 FN: 0004602

 THIRD READING  

Bill No: AB 354

Author:

Amended: 8/17/18 in Senate

Vote:

SENATE BANKING & F.I. COMMITTEE: 4-2, 6/20/18

AYES: Galgiani, Hueso, Lara, Portantino

NOES: Vidak, Gaines

NO VOTE RECORDED: Bradford

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/16/18

AYES: Portantino, Beall, Bradford, Hill, Weiner

NOES: Bates, Nielsen

ASSEMBLY FLOOR: 52-23, 5/31/17 - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill requires institutional investors, as defined, to register with and provide specified information to the Department of Business Oversight (DBO) regarding residential properties they own, and requires DBO to submit a report to the Legislature annually, regarding the information submitted by institutional investors.

ANALYSIS: Existing law provides for DBO within the Business, Consumer Services, and Housing Agency, and gives the Commissioner of DBO jurisdiction over a variety of financial services laws under which mortgage loans may be made and serviced, including the Banking Law, California Credit Union Law, California Financing Law, and California Residential Mortgage Lending Act.

This bill:

1. Defines an institutional investor as a publicly traded company or corporation, which owns more than 100 single-family homes in California during a calendar year that are occupied by renters and that have a total value of more than $10 million. Provides that an institutional investor does not include a lienholder that acquires ownership of a single-family home through a judicial or nonjudicial foreclosure.
   
2. Requires each institutional investor to register with DBO by July 1, 2018, and annually thereafter, by providing DBO with a written statement regarding all of the following:
   
   1. The total number of single-family homes in California that are owned by the institutional investor in each county, including the number that are occupied by renters throughout the state and in each county.
      
   2. The total number of single-family homes annually purchased by the institutional investor.
      
   3. The total number of offers made by the institutional investor to purchase single-family homes in the state.
      
   4. The total dollar value of single-family homes owned by the institutional investor in the state and the total dollar value of single-family homes owned by the institutional investor that are occupied by renters.
      
   5. The total number of single-family homes that are sold to existing tenants.
      
3. Authorizes DBO to charge a reasonable fee to administer the registration required by this bill.
   
4. Requires DBO to submit a report to the Legislature by July 1, 2020, and annually thereafter, regarding the information provided by institutional investors pursuant to this bill.
   

Comments

This bill, like AB 2282 (Calderon) from 2016, is a response to a spike in interest among investors in residential real property in California following the mortgage meltdown of 2008. In background material provided by the author’s office, the author describes the need for the bill, as follows: In the aftermath of the financial crisis, the supply of vacant homes far exceeded the demand for owner-occupied homes. This severe imbalance created a unique opportunity for a small number of well-funded investors to purchase a large number of single-family homes. At the time, the vast majority of these purchases were foreclosures or short sales; however, as the housing market recovery progressed, purchases of non-distressed homes by institutional investors increased.

Although institutional investors represent a fraction of those in the housing market, this bill’s author is concerned that securitization will shift this balance. In October, 2013, an institutional investor created the first triple-A-rated, mortgage-backed security supported by revenue from single-family rental properties; other securitizations have followed. The author is concerned that there is nothing currently preventing institutional investors from continuing to purchase as many single-family homes as possible. Families already have a difficult time trying to save up enough money for a down payment. From the author’s perspective, forcing a family to compete against an institutional investor with strong financial backing isn’t fair from either a monetary or a technological standpoint. As one example, the author’s office cites a statement made by the Chief Executive Officer of Starwood Waypoint: “We encourage our guys to make an offer before they see the house. I don’t want to wait for anyone else. Our competitors are also fast.”

This bill’s author does acknowledge that institutional investors played an important role in many housing markets that were struggling in the aftermath of the financial crisis, by helping raise home prices and reducing the number of vacant properties in hard-hit neighborhoods. But, the author also notes that the scope of investor activity in the single-family home market relative to owner-occupant purchases is unprecedented, as is the size of the institutional investors’ large, single-family rental portfolios. The author is concerned that if these institutional investors fail to receive the rental income they are expecting, and if they struggle to repay the people holding the bonds backed by that rental income, the institutional investors could release a flood of single-family homes onto the real estate market at once, causing housing prices to drop dramatically and harming thousands of families in the process.

According to the author’s office, five companies currently meet this bill’s definition of institutional investor: Invitation Homes, Colony Starwood Homes, American Homes 4 Rent, Altisource, and Silver Bay. It is unknown how the aggregate value of these companies’ holdings compares to the aggregate value of the holdings of other California housing investors that are not covered by this bill.

Are the Author’s Concerns Valid? At the present time, property values are up relative to their foreclosure crisis lows, rental prices are near historic highs, housing inventory for sale is extremely low, foreclosures are rare, and institutional investors are purchasing very few homes, all factors that serve to refute the author’s concerns that institutional investors are frequently out-bidding single-family homebuyers or are in danger of flooding the market with large numbers of homes in a desperate attempt to repay their bond investors.

However, housing markets are notoriously cyclical; what goes up eventually comes down, and what goes down eventually goes back up. While the author’s concerns about the dangers posed by institutional investors may be greater than is warranted at the present time, his concerns could prove valid once the next housing downturn hits. There may be long-term value in helping the Legislature understand the impact of institutional investors on California’s housing market; the outstanding question is whether the benefit of involving the state in collecting and reporting such information outweighs the cost (see Fiscal Effect below).

Penalty for Failure to Comply. This bill is currently drafted outside of the licensing laws DBO administers. It also lacks any penalties for failure to comply with its provisions. It is unclear whether the institutional investors subject to this bill’s provisions will have sufficient incentives to comply with it, absent any penalty provisions.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee, this bill will result in one-time, potentially significant costs to DBO to develop a database to store the data received from institutional investors. (special fund); ongoing costs in the low hundreds of thousands of dollars for increased workload to collect the data, maintain the database, and prepare the administrative report. (special fund); unknown potential cost pressures for DBO depending on whether the department analyzes the data it will collect and the findings of any such analysis. (special fund); and potential revenue from administrative fees authorized by this bill, which could at least partially offset the aforementioned costs.

SUPPORT: (Verified 8/16/18)

California Community Builders

The Two Hundred

OPPOSITION: (Verified 8/16/18)

National Rental Home Council

ARGUMENTS IN SUPPORT: The Two Hundred and California Community Builders support this bill, because they believe it has “the potential to increase the development of badly needed housing and increase homeownership opportunities.”

ARGUMENTS IN OPPOSITION: The National Rental Home Council (NRHC) opposes this bill on grounds that the reporting scheme proposed in the bill is unwarranted. AB 354 “is redundant and commits the state to data collection on a negligible segment of the real estate buyer community.” NRHC raises three specific points: First, “the premise that professional rental companies are competing with first-time home-buyer opportunities is simply not accurate. Our membership collectively purchased approximately 245 homes in California in the past six months, compared to total single-family home resales of over 416,000.”

Second, many of the homes purchased by NRHC members are distressed properties that cannot be financed with traditional mortgages, require the settlement of both delinquent homeowner’s association fees and property taxes, and often need extensive renovations. NRHC members average $29,000 in renovations per home in California.

Finally, the largest institutional investors are publicly-traded and are required to submit public filings that contain much of the same information that AB 354 requires be submitted to DBO. “The current filings include data on home locations, occupancy rates, average rent, total rental revenues and our ongoing economic contributions through property management and maintenance expenditures. Most of this data is provided in detail by market.”

ASSEMBLY FLOOR: 52-23, 5/31/17

AYES: Aguiar-Curry, Arambula, Berman, Bloom, Bocanegra, Bonta, Burke, Caballero, Calderon, Cervantes, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Frazier, Friedman, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, McCarty, Mullin, Muratsuchi, Nazarian, O'Donnell, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Wood, Rendon

NOES: Acosta, Travis Allen, Baker, Bigelow, Brough, Chávez, Chen, Cunningham, Dahle, Flora, Fong, Gallagher, Harper, Kiley, Lackey, Maienschein, Mathis, Mayes, Obernolte, Patterson, Steinorth, Voepel, Waldron

NO VOTE RECORDED: Choi, Eggman, Medina, Melendez, Quirk

Prepared by:

8/20/18 10:40:15

**** END ****

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2017 - 2018 Regular Session

AB 354 (Calderon) - Institutional investors: housing

Bill Summary:

AB 354 would require institutional investors to register with and provide specified information to the Department of Business Oversight (DBO) regarding residential properties they own and would require DBO to submit a report to the Legislature annually, regarding the information submitted by institutional investors.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on August 16, 2018

Fiscal Impact:

• One-time, potentially significant costs to DBO to develop a database to store the data received from institutional investors. (special fund)
• Ongoing costs in the low hundreds of thousands of dollars for increased workload to collect the data, maintain the database, and prepare the administrative report. (special fund)
• Potential revenue from administrative fees authorized by this bill. The costs for creating the database and the increased workload could be at least partially offset by the fees. (special fund)
• Unknown potential cost pressures for DBO depending on whether the department analyzes the data it will collect and the findings of any such analysis. (special fund)

Author Amendments:

Exempt from these provisions, a lienholder that acquires ownership of a single-family home through a judicial or nonjudicial foreclosure.

-- END --

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2017 - 2018 Regular Session

AB 354 (Calderon) - Institutional investors: housing

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 354 would require institutional investors to register with and provide specified information to the Department of Business Oversight (DBO) regarding residential properties they own and would require DBO to submit a report to the Legislature annually, regarding the information submitted by institutional investors.

Fiscal Impact:

• One-time, potentially significant costs to DBO to develop a database to store the data received from institutional investors. (special fund)
• Ongoing costs in the low hundreds of thousands of dollars for increased workload to collect the data, maintain the database, and prepare the administrative report. (special fund)
• Potential revenue from administrative fees authorized by this bill. The costs for creating the database and the increased workload could be at least partially offset by the fees. (special fund)
• Unknown potential cost pressures for DBO depending on whether the department analyzes the data it will collect and the findings of any such analysis. (special fund)

Background:

During and following the mortgage crisis in 2008, the supply of vacant homes exceeded the demand for owner-occupied homes. Investors in residential real property in California purchased homes in foreclosure or short sales. According to the author, instead of renovating and reselling these properties, institutional investors have converted these properties into permanent rental homes.

According to the author’s office, there are five companies that currently meet this bill’s definition of institutional investor: Invitation Homes, Colony Starwood Homes, American Homes 4 Rent, Altisource, and Silver Bay.

Proposed Law:

This bill would:

• Require an institutional investor, as defined, to register by July 1, 2019, and annually thereafter, with DBO by providing the department with a written statement regarding specified information on the single-family homes owned by the investor for the prior calendar year;
• Authorize DBO to charge a reasonable fee to administer the registration;
• Require DBO to submit a report to the Legislature by July 1, 2020, and annually thereafter, regarding the information collected and submitted by the institutional investors.

Related Legislation:

AB 2282 (Calderon, 2016) would have established the Task Force on Institutional Investors within the Bureau of Real Estate and required the Task Force to issue a report to the Governor and the Legislature regarding the impact of large-scale buy-to-rent investors on the real estate market. It died on the Senate Inactive File.

Staff Comments:

Staff notes that the provisions of this bill are currently outside of the licensing laws that DBO administers. DBO registers securities and this bill would require DBO to register non-security investments. Additionally, there are no penalties for failure to comply with the provisions of this bill.

-- END --

SENATE COMMITTEE ON

BANKING AND FINANCIAL INSTITUTIONS

Senator Steven Bradford, Chair

2017 - 2018 Regular

Bill No: AB 354 Hearing Date: June 20, 2018

Subject: Institutional investors: housing

SUMMARY

This bill requires institutional investors, as defined, to register with and provide specified information to the Department of Business Oversight (DBO) regarding residential properties they own, and requires DBO to submit a report to the Legislature annually, regarding the information submitted by institutional investors.

EXISTING LAW

1. Provides for DBO within the Business, Consumer Services, and Housing Agency, and gives the Commissioner of DBO jurisdiction over a variety of financial services laws under which mortgage loans may be made and serviced, including the Banking Law, California Credit Union Law, California Financing Law, and California Residential Mortgage Lending Act.

THIS BILL

1. Defines an institutional investor as a publicly traded company or corporation, which owns more than 100 single-family homes in California during a calendar year that are occupied by renters and that have a total value of more than $10 million.
   
2. Requires each institutional investor to register with DBO by July 1, 2018, and annually thereafter, by providing DBO with a written statement regarding all of the following:
   
   1. The total number of single-family homes in California that are owned by the institutional investor in each county, including the number that are occupied by renters throughout the state and in each county.
      
   2. The total number of single-family homes annually purchased by the institutional investor.
      
   3. The total number of offers made by the institutional investor to purchase single-family homes in the state.
      
   4. The total dollar value of single-family homes owned by the institutional investor in the state and the total dollar value of single-family homes owned by the institutional investor that are occupied by renters.
      
   5. The total number of single-family homes that are sold to existing tenants.
      
3. Authorizes DBO to charge a reasonable fee to administer the registration required by the bill.
   
4. Requires DBO to submit a report to the Legislature by July 1, 2019, and annually thereafter, regarding the information provided by institutional investors pursuant to the bill.
   

COMMENTS

1. Reconsideration: The current version of this bill failed passage in the Senate Insurance, Banking and Financial Institutions Committee on July 12, 2017 and was granted reconsideration.
   
2. Purpose: This bill is sponsored by the author to allow more families to become homeowners. It attempts to do so by requiring institutional investors to report to DBO the number of single-family homes they own and rent out and requiring DBO to report this information to the Legislature. This bill’s author hopes that this information “will help the Legislature understand what kind of parameters will need to be set in place to avoid homes being turned into permanent rentals.” It is also his hope “that these corporations will understand that their claims of not affecting the California housing market will be found false.”
   
3. Background: This bill, like AB 2282 (Calderon) from 2016, is a response to a spike in interest among investors in residential real property in California following the mortgage meltdown of 2008. In background material provided by the author’s office, the author describes the need for the bill, as follows: In the aftermath of the financial crisis, the supply of vacant homes far exceeded the demand for owner-occupied homes. This severe imbalance created a unique opportunity for a small number of well-funded investors to purchase a large number of single-family homes. At the time, the vast majority of these purchases were foreclosures or short sales; however, as the housing market recovery progressed, purchases of non-distressed homes by institutional investors increased.
   
   Although institutional investors represent a fraction of those in the housing market, this bill’s author is concerned that securitization will shift this balance. In October, 2013, an institutional investor created the first triple-A-rated, mortgage-backed security supported by revenue from single-family rental properties; other securitizations have followed. The author is concerned that there is nothing currently preventing institutional investors from continuing to purchase as many single-family homes as possible. Families already have a difficult time trying to save up enough money for a down payment. From the author’s perspective, forcing a family to compete against an institutional investor with strong financial backing isn’t fair from either a monetary or a technological standpoint. As one example, the author’s office cites a statement made by the Chief Executive Officer of Starwood Waypoint: “We encourage our guys to make an offer before they see the house. I don’t want to wait for anyone else. Our competitors are also fast.”
   
   This bill’s author does acknowledge that institutional investors played an important role in many housing markets that were struggling in the aftermath of the financial crisis, by helping raise home prices and reducing the number of vacant properties in hard-hit neighborhoods. But, the author also notes that the scope of investor activity in the single-family home market relative to owner-occupant purchases is unprecedented, as is the size of the institutional investors’ large, single-family rental portfolios. The author is concerned that if these institutional investors fail to receive the rental income they are expecting, and if they struggle to repay the people holding the bonds backed by that rental income, the institutional investors could release a flood of single-family homes onto the real estate market at once, causing housing prices to drop dramatically and harming thousands of families in the process.
   
4. Who Will Be Covered? According to the author’s office, five companies currently meet this bill’s definition of institutional investor: Invitation Homes, Colony Starwood Homes, American Homes 4 Rent, Altisource, and Silver Bay. It is unknown how the aggregate value of these companies’ holdings compares to the aggregate value of the holdings of other California housing investors that are not covered by the bill.
   
5. Are the Author’s Concerns Valid? At the present time, property values are up relative to their foreclosure crisis lows, rental prices are near historic highs, housing inventory for sale is extremely low, foreclosures are rare, and institutional investors are purchasing very few homes, all factors that serve to refute the author’s concerns that institutional investors are frequently out-bidding single-family homebuyers or are in danger of flooding the market with large numbers of homes in a desperate attempt to repay their bond investors.
   
   However, housing markets are notoriously cyclical; what goes up eventually comes down, and what goes down eventually goes back up. While the author’s concerns about the dangers posed by institutional investors may be greater than is warranted at the present time, his concerns could prove valid once the next housing downturn hits. There may be long-term value in helping the Legislature understand the impact of institutional investors on California’s housing market; the outstanding question is whether the benefit of involving the state in collecting and reporting such information outweighs the cost (see “costs of compliance,” below).
   
6. Costs of Compliance: According to the Assembly Appropriations Committee, DBO estimates that this bill will result in one-time costs of $700,000 to develop a database to store the data, plus an additional $500,000 annually for four positions to collect the data, maintain the database, and prepare the required report. The bill authorizes DBO to charge a “reasonable fee” to administer the registration the bill requires. If, as the author’s office believes, only five institutional investors will be subject to the bill’s provisions, the per-company cost of the bill will be $240,000 in the first year of the bill’s implementation and $125,000 annually thereafter. It is unclear whether those costs would be considered “reasonable” or whether DBO will be required to use other funding sources to offset its costs to implement the bill.
   
7. Determining Property Value: This bill requires each institutional investor subject to the bill to report to DBO the total dollar value of the residential properties it owns, as well as the total dollar value of the residential properties it owns, which are occupied by renters. However, the bill lacks any guidance regarding the method or methods an institutional investor should use to derive those values. If this bill’s author wishes to add such clarity to the bill, the least expensive way to do so would be to authorize each institutional investor to provide an estimate of these values, derived in-house or through the use of automated valuation models. More expensive options would involve the use of broker price opinions or appraisals performed by licensed or certified appraisers.
   
8. Penalty for Failure to Comply: This bill is currently drafted outside of the licensing laws DBO administers. It also lacks any penalties for failure to comply with its provisions. It is unclear whether the institutional investors subject to the bill’s provisions will have sufficient incentives to comply with it, absent any penalty provisions.
   
9. Support: The Two Hundred and California Community Builders support the bill, because they believe it has “the potential to increase the development of badly needed housing and increase homeownership opportunities.”
   
10. Opposition: The National Rental Home Council (NRHC) opposes the bill on grounds that the reporting scheme proposed in the bill is unwarranted. AB 354 “is redundant and commits the state to data collection on a negligible segment of the real estate buyer community.” NRHC raises three specific points: First, “the premise that professional rental companies are competing with first-time home-buyer opportunities is simply not accurate. Our membership collectively purchased approximately 245 homes in California in the past six months, compared to total single-family home resales of over 416,000.”
    
    Second, many of the homes purchased by NRHC members are distressed properties that cannot be financed with traditional mortgages, require the settlement of both delinquent homeowner’s association fees and property taxes, and often need extensive renovations. NRHC members average $29,000 in renovations per home in California.
    
    Finally, the largest institutional investors are publicly-traded and are required to submit public filings that contain much of the same information that AB 354 would require be submitted to DBO. “The current filings include data on home locations, occupancy rates, average rent, total rental revenues and our ongoing economic contributions through property management and maintenance expenditures. Most of this data is provided in detail by market.”
    
11. Suggested Amendments:
    1. The following technical amendments are suggested to address some of this bill’s implementation concerns:
       
       Page 2, line 7, strike “2018” and insert: 2019
       
       Page 3, line 25, strike “2019” and insert: 2020
       

Page 2, line 9, after “following” insert: for the prior calendar year

Page 2, line 18, after “homes” insert: in the state

Page 3, lines 5 through 13: For purposes of this section “institutional investor” means a publicly traded company or corporation that owns more than 100 single-family owns homes in the state during a calendar year that are occupied by renters and that have a total value of more than ten million dollars ($10,000,000).

• 1. This bill’s author is also proposing the following amendment to address Comment 7, above, regarding the determination of property value.
     
     Page 3, line 13, after the period, insert: An institutional investor may use an automated valuation model to estimate the value of the homes it owns, for purposes of determining whether it meets the definition of an institutional investor.
     

1. Prior and Related Legislation:
   
   1. AB 2282 (Calderon), 2015-16 Legislative Session: Would have established the Task Force on Institutional Investors within the Bureau of Real Estate and required the task force to issue a report to the Governor and the Legislature regarding the impact of large-scale buy-to-rent investors on the real estate market. Died on the Senate Inactive File.
      

LIST OF REGISTERED SUPPORT/OPPOSITION

Support

California Community Builders

The Two Hundred

Opposition

National Rental Home Council

-- END --

SENATE COMMITTEE ON

Senator Tony Mendoza, Chair

2017 - 2018 Regular

Bill No: Hearing Date: July 12, 2017

Subject:

SUMMARY

This bill requires institutional investors, as defined, to register with and provide specified information to the Department of Business Oversight (DBO) regarding residential properties they own, and requires DBO to submit a report to the Legislature annually, regarding the information submitted by institutional investors.

DIGEST

Existing law:

1. Provides for DBO within the Business, Consumer Services, and Housing Agency, and gives the Commissioner of DBO jurisdiction over a variety of financial services laws under which mortgage loans may be made and serviced, including the Banking Law, Credit Union Law, California Finance Lenders Law, and California Residential Mortgage Lending Act.

This bill:

1. Defines an institutional investor as a publicly traded company or corporation, which owns more than 100 single-family homes in California during a calendar year that are occupied by renters and that have a total value of more than $10 million.
   
2. Requires each institutional investor to register with DBO by July 1, 2018, and annually thereafter, by providing DBO with a written statement regarding all of the following:
   
   1. The total number of single-family homes in California that are owned by the institutional investor in each county, including the number that are occupied by renters throughout the state and in each county.
      
   2. The total number of single-family homes annually purchased by the institutional investor.
      
   3. The total number of offers made by the institutional investor to purchase single-family homes in the state.
      
   4. The total dollar value of single-family homes owned by the institutional investor in the state and the total dollar value of single-family homes owned by the institutional investor that are occupied by renters.
      
   5. The total number of single-family homes that are sold to existing tenants.
      
3. Authorizes DBO to charge a reasonable fee to administer the registration required by the bill.
   
4. Requires DBO to submit a report to the Legislature by July 1, 2019, and annually thereafter, regarding the information provided by institutional investors pursuant to the bill.
   

COMMENTS

1. Purpose of the bill: This bill is intended to allow more families to become homeowners. It attempts to do so by requiring institutional investors to report to DBO the number of single-family homes they own and rent out and requiring DBO to report this information to the Legislature. This bill’s author hopes that this information “will help the Legislature understand what kind of parameters will need to be set in place to avoid homes being turned into permanent rentals.” It is also his hope “that these corporations will understand that their claims of not affecting the California housing market will be found false.”
   
2. Background and Author’s Stated Need for the Bill: This bill, like AB 2282 (Calderon) from last year, is a response to a spike in interest among investors in residential real property in California following the mortgage meltdown of 2008. In background material provided by the author’s office, the author describes the need for the bill, as follows: In the aftermath of the financial crisis, the supply of vacant homes far exceeded the demand for owner-occupied homes. This severe imbalance created a unique opportunity for a small number of well-funded investors to purchase a large number of single-family homes. At the time, the vast majority of these purchases were foreclosures or short sales; however, as the housing market recovery progressed, purchases of non-distressed homes by institutional investors increased.
   
   Although institutional investors represent a fraction of those in the housing market, this bill’s author is concerned that securitization will shift this balance. In October, 2013, an institutional investor created the first triple-A-rated, mortgage-backed security supported by revenue from single-family rental properties; other securitizations have followed. The author is concerned that there is nothing currently preventing institutional investors from continuing to purchase as many single-family homes as possible. Families already have a difficult time trying to save up enough money for a down payment. From the author’s perspective, forcing a family to compete against an institutional investor with strong financial backing isn’t fair from either a monetary or a technological standpoint. As one example, the author’s office cites a statement made by the Chief Executive Officer of Starwood Waypoint: “We encourage our guys to make an offer before they see the house. I don’t want to wait for anyone else. Our competitors are also fast.”
   
   This bill’s author does acknowledge that institutional investors played an important role in many housing markets that were struggling in the aftermath of the financial crisis, by helping raise home prices and reducing the number of vacant properties in hard-hit neighborhoods. But, the author also notes that the scope of investor activity in the single-family home market relative to owner-occupant purchases is unprecedented, as is the size of the institutional investors’ large, single-family rental portfolios. The author is concerned that if these institutional investors fail to receive the rental income they are expecting, and if they struggle to repay the people holding the bonds backed by that rental income, the institutional investors could release a flood of single-family homes onto the real estate market at once, causing housing prices to drop dramatically and harming thousands of families in the process.
   
3. Who Will Be Covered: According to the author’s office, five companies currently meet this bill’s definition of institutional investor: Invitation Homes, Colony Starwood Homes, American Homes 4 Rent, Altisource, and Silver Bay. It is unknown how the aggregate value of these companies’ holdings compares to the aggregate value of the holdings of other California housing investors that are not covered by the bill.
   
4. Are the Author’s Concerns Valid? At the present time, property values are up relative to their foreclosure crisis lows, rental prices are near historic highs, housing inventory for sale is extremely low, foreclosures are rare, and institutional investors are purchasing very few homes, all factors that serve to refute the author’s concerns that institutional investors are frequently out-bidding single-family homebuyers or are in danger of flooding the market with large numbers of homes in a desperate attempt to repay their bond investors.
   
   However, housing markets are notoriously cyclical; what goes up eventually comes down, and what goes down eventually goes back up. While the author’s concerns about the dangers posed by institutional investors may be greater than is warranted at the present time, his concerns could prove valid once the next housing downturn hits. There may be long-term value in helping the Legislature understand the impact of institutional investors on California’s housing market; the outstanding question is whether the benefit of involving the state in collecting and reporting such information outweighs the cost (see “costs of compliance,” below).
   
5. Costs of Compliance: According to the Assembly Appropriations Committee, DBO estimates that this bill will result in one-time costs of $700,000 to develop a database to store the data, plus an additional $500,000 annually for four positions to collect the data, maintain the database, and prepare the required report. The bill authorizes DBO to charge a “reasonable fee” to administer the registration the bill requires. If, as the author’s office believes, only five institutional investors will be subject to the bill’s provisions, the per-company cost of the bill will be $240,000 in the first year of the bill’s implementation and $125,000 annually thereafter. It is unclear whether those costs would be considered “reasonable” or whether DBO will be required to use other funding sources to offset its costs to implement the bill.
   
6. Determining Property Value: This bill requires each institutional investor subject to the bill to report to DBO the total dollar value of the residential properties it owns, as well as the total dollar value of the residential properties it owns, which are occupied by renters. However, the bill lacks any guidance regarding the method or methods an institutional investor should use to derive those values. If this bill’s author wishes to add such clarity to the bill, the least expensive way to do so would be to authorize each institutional investor to provide an estimate of these values, derived in-house or through the use of automated valuation models. More expensive options would involve the use of broker price opinions or appraisals performed by licensed or certified appraisers.
   
7. Penalty for Failure to Comply: As drafted, this bill lacks any penalties for failure to comply with its provisions. It is unclear whether the institutional investors subject to the bill’s provisions will have sufficient incentives to comply with it, absent any penalty provisions.
   
8. Support: The Two Hundred and California Community Builders support the bill, because they believe it has “the potential to increase the development of badly needed housing and increase homeownership opportunities.”
9. Opposition: The National Rental Home Council (NRHC) opposes the bill on grounds that the reporting scheme proposed in the bill is unwarranted. AB 354 “is redundant and commits the state to data collection on a negligible segment of the real estate buyer community.” NRHC raises three specific points: First, “the premise that professional rental companies are competing with first-time home-buyer opportunities is simply not accurate. Our membership collectively purchased approximately 245 homes in California in the past six months, compared to total single-family home resales of over 416,000.”
   
   Second, many of the homes purchased by NRHC members are distressed properties that cannot be financed with traditional mortgages, require the settlement of both delinquent homeowner’s association fees and property taxes, and often need extensive renovations. NRHC members average $29,000 in renovations per home in California.
   
   Finally, the largest institutional investors are publicly-traded and are required to submit public filings that contain much of the same information that AB 354 would require be submitted to DBO. “The current filings include data on home locations, occupancy rates, average rent, total rental revenues and our ongoing economic contributions through property management and maintenance expenditures. Most of this data is provided in detail by market.”
10. Suggested Amendments: The following technical amendments are suggested:
    1. Require the information submitted to DBO by July 1^st of each year to reflect information for the prior calendar year.
       
       Page 2, line 9, after “following” insert: for the prior calendar year
       
    2. Page 2, line 18, after “homes” insert: in the state
       
    3. Correct the definition of institutional investor, as follows:
       
       Page 3, lines 5 through 13: For purposes of this section “institutional investor” means a publicly traded company or corporation that owns more than 100 single-family owns homes in the state during a calendar year that are occupied by renters and that have a total value of more than ten million dollars ($10,000,000).
       
11. Prior and Related Legislation:
    
    1. AB 2282 (Calderon), 2015-16 Legislative Session: Would have established the Task Force on Institutional Investors within the Bureau of Real Estate and required the task force to issue a report to the Governor and the Legislature regarding the impact of large-scale buy-to-rent investors on the real estate market. Died on the Senate Inactive File.
       

POSITIONS

Support

California Community Builders

The Two Hundred

Oppose

National Rental Home Council

-- END --

SENATE COMMITTEE ON

Senator Tony Mendoza, Chair

2017 - 2018 Regular

Bill No: Hearing Date: June 28, 2017

Subject:

SUMMARY

This bill requires institutional investors, as defined, to register with and provide specified information to the Department of Business Oversight (DBO) regarding residential properties they own, and requires DBO to submit a report to the Legislature annually, regarding the information submitted by institutional investors.

DIGEST

Existing law:

1. Provides for DBO within the Business, Consumer Services, and Housing Agency, and gives the Commissioner of DBO jurisdiction over a variety of financial services laws under which mortgage loans may be made and serviced, including the Banking Law, Credit Union Law, California Finance Lenders Law, and California Residential Mortgage Lending Act.

This bill:

1. Defines an institutional investor as a publicly traded company or corporation that is devoted to holding and managing more than 100 single-family residential properties with a total value of more than $10 million in California, which are occupied by renters, and that owns more than 100 single-family homes in California during a calendar year.
   
2. Requires each institutional investor to register with DBO by July 1, 2018, and annually thereafter, by providing DBO with a written statement regarding all of the following:
   
   1. The total number of residential properties in California that are owned by the institutional investor in each county, and in total across California, including the total number of residential properties occupied by renters.
      
   2. The total number of residential properties annually purchased by the institutional investor.
      
   3. The total number of offers to purchase residential properties in the state made by the institutional investor.
      
   4. The total dollar value of residential properties owned by the institutional investor in the state and the total dollar value of residential properties owned by the institutional investor that are occupied by renters.
      
   5. The total number of residential properties that are sold to existing tenants.
      
3. Authorizes DBO to charge a reasonable fee to administer the registration required by the bill.
   
4. Requires DBO to submit a report to the Legislature by December 1, 2018, and annually thereafter, regarding the information provided by institutional investors pursuant to the bill.
   

COMMENTS

1. Purpose of the bill: This bill is intended to allow more families to become homeowners. It attempts to do so by requiring institutional investors to report to DBO the number of single-family homes they own and rent out and requiring DBO to report this information to the Legislature. This bill’s author hopes that this information “will help the Legislature understand what kind of parameters will need to be set in place to avoid homes being turned into permanent rentals.” It is also his hope “that these corporations will understand that their claims of not affecting the California housing market will be found false.”
   
2. Background and Author’s Stated Need for the Bill: This bill, like AB 2282 (Calderon) from last year, is a response to a spike in interest among investors in residential real property in California following the mortgage meltdown of 2008. In background material provided by the author’s office, the author describes the need for the bill, as follows: In the aftermath of the financial crisis, the supply of vacant homes far exceeded the demand for owner-occupied homes. This severe imbalance created a unique opportunity for a small number of well-funded investors to purchase a large number of single-family homes. At the time, the vast majority of these purchases were foreclosures or short sales; however, as the housing market recovery progressed, purchases of non-distressed homes by institutional investors increased.
   
   Although institutional investors represent a fraction of those in the housing market, this bill’s author is concerned that securitization will shift this balance. In October, 2013, an institutional investor created the first triple-A-rated, mortgage-backed security supported by revenue from single-family rental properties; other securitizations have followed. The author is concerned that there is nothing currently preventing institutional investors from continuing to purchase as many single-family homes as possible. Families already have a difficult time trying to save up enough money for a down payment. From the author’s perspective, forcing a family to compete against an institutional investor with strong financial backing isn’t fair from either a monetary or a technological standpoint. As one example, the author’s office cites a statement made by the Chief Executive Officer of Starwood Waypoint: “We encourage our guys to make an offer before they see the house. I don’t want to wait for anyone else. Our competitors are also fast.”
   
   This bill’s author does acknowledge that institutional investors played an important role in many housing markets that were struggling in the aftermath of the financial crisis, by helping raise home prices and reducing the number of vacant properties in hard-hit neighborhoods. But, the author also notes that the scope of investor activity in the single-family home market relative to owner-occupant purchases is unprecedented, as is the size of the institutional investors’ large, single-family rental portfolios. The author is concerned that if these institutional investors fail to receive the rental income they are expecting, and if they struggle to repay the people holding the bonds backed by that rental income, the institutional investors could release a flood of single-family homes onto the real estate market at once, causing housing prices to drop dramatically and harming thousands of families in the process.
   
3. Who Will Be Covered: According to the author’s office, five companies currently meet this bill’s definition of institutional investor: Invitation Homes, Colony Starwood Homes, American Homes 4 Rent, Altisource, and Silver Bay. It is unknown how the aggregate value of these companies’ holdings compares to the aggregate value of the holdings of other California housing investors that are not covered by the bill.
   
4. Are the Author’s Concerns Valid? At the present time, property values are up relative to their foreclosure crisis lows, rental prices are near historic highs, housing inventory for sale is extremely low, foreclosures are rare, and institutional investors are purchasing very few homes, all factors that serve to refute the author’s concerns that institutional investors are frequently out-bidding single-family homebuyers or are in danger of flooding the market with large numbers of homes in a desperate attempt to repay their bond investors.
   
   However, housing markets are notoriously cyclical; what goes up eventually comes down, and what goes down eventually goes back up. While the author’s concerns about the dangers posed by institutional investors may be greater than is warranted at the present time, his concerns could prove valid once the next housing downturn hits. There may be long-term value in helping the Legislature understand the impact of institutional investors on California’s housing market; the outstanding question is whether the benefit of involving the state in collecting and reporting such information outweighs the cost (see “costs of compliance,” below).
   
5. Costs of Compliance: According to the Assembly Appropriations Committee, DBO estimates that this bill will result in one-time costs of $700,000 to develop a database to store the data, plus an additional $500,000 annually for four positions to collect the data, maintain the database, and prepare the required report. The bill authorizes DBO to charge a “reasonable fee” to administer the registration the bill requires. If, as the author’s office believes, only five institutional investors will be subject to the bill’s provisions, the per-company cost of the bill will be $240,000 in the first year of the bill’s implementation and $125,000 annually thereafter. It is unclear whether those costs would be considered “reasonable” or whether DBO will be required to use other funding sources to offset its costs to implement the bill.
   
6. Determining Property Value: This bill requires each institutional investor subject to the bill to report to DBO the total dollar value of the residential properties it owns, as well as the total dollar value of the residential properties it owns, which are occupied by renters. However, the bill lacks any guidance regarding the method or methods an institutional investor should use to derive those values. If this bill’s author wishes to add such clarity to the bill, the least expensive way to do so would be to authorize each institutional investor to provide an estimate of these values, derived in-house or through the use of automated valuation models. More expensive options would involve the use of broker price opinions or appraisals performed by licensed or certified appraisers.
   
7. Penalty for Failure to Comply: As drafted, this bill lacks any penalties for failure to comply with its provisions. It is unclear whether the institutional investors subject to the bill’s provisions will have sufficient incentives to comply with it, absent any penalty provisions.
   
8. Support: The Two Hundred and California Community Builders support the bill, because they believe it has “the potential to increase the development of badly needed housing and increase homeownership opportunities.”
9. Opposition: The National Rental Home Council (NRHC) opposes the bill on grounds that the reporting scheme proposed in the bill is unwarranted. AB 354 “is redundant and commits the state to data collection on a negligible segment of the real estate buyer community.” NRHC raises three specific points: First, “the premise that professional rental companies are competing with first-time home-buyer opportunities is simply not accurate. Our membership collectively purchased approximately 245 homes in California in the past six months, compared to total single-family home resales of over 416,000.”
   
   Second, many of the homes purchased by NRHC members are distressed properties that cannot be financed with traditional mortgages, require the settlement of both delinquent homeowner’s association fees and property taxes, and often need extensive renovations. NRHC members average $29,000 in renovations per home in California.
   
   Finally, the largest institutional investors are publicly-traded and are required to submit public filings that contain much of the same information that AB 354 would require be submitted to DBO. “The current filings include data on home locations, occupancy rates, average rent, total rental revenues and our ongoing economic contributions through property management and maintenance expenditures. Most of this data is provided in detail by market.”
10. Suggested Amendments: The author’s office is offering the following technical amendments:
    1. Change references from “residential properties” and “single-family residential properties” to “single-family homes” and add a definition for single-family home, as follows: “For purposes of this section, a single-family home means a real property improvement used or intended to be used as a dwelling unit for one family.”
       
    2. Require the information submitted to DBO by July 1^st of each year to reflect information for the prior calendar year.
       
    3. Reduce the duplicative wording on page 2, lines 10 through 14, by striking the existing language and replacing it with the following: “(1) The number of single-family homes in the state that are owned by the institutional investor and the number of those homes that are occupied by renters, reported by county and in the aggregate across the state.”
       
    4. Add the words “in this state” on page 2, line 15, after the reference to properties.
       
    5. Revise the definition of an institutional investor by striking lines 1 through 9 on page 3 and replacing them with the following: “(c) For purposes of this section, an “institutional investor” means a publicly traded company or corporation that owns more than 100 single-family homes in this state that are occupied by renters during a calendar year and that have a total value of more than $10 million.”
       
11. Prior and Related Legislation:
    
    1. AB 2282 (Calderon), 2015-16 Legislative Session: Would have established the Task Force on Institutional Investors within the Bureau of Real Estate and required the task force to issue a report to the Governor and the Legislature regarding the impact of large-scale buy-to-rent investors on the real estate market. Died on the Senate Inactive File.
       

POSITIONS

Support

California Community Builders

The Two Hundred

Oppose

National Rental Home Council

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 354

Author:(Calderon)

As Amended Ver:May 1, 2017

Majority vote

SUMMARY: Requires institutional investors, as defined, to register with the Department of Business Oversight (DBO) by providing a statement containing specified information. Specifically, this bill:

1. Defines "institutional investor" as a company or corporation that owns more than 100 residential properties with a total value of more than $10 million in the state.
2. Allows DBO to charge a reasonable fee to administer the registration program.
3. Requires institutional investors to provide information including, but not limited to, the total number of residential properties owned, the total number of properties occupied by renters and the total number of properties purchased annually.
4. Requires DBO to submit a report to the Legislature by December 1, 2018, and annually thereafter, as specified.

EXISTING LAW: States legislative findings and declarations that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state (Health and Safety Code Section 50001).

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. One-time costs of $700,000 to DBO to develop a database to store the data. This cost could be paid for, at least partially, by the administrative fee authorized by this bill.
2. $500,000 annually for four positions at DBO to collect the data, maintain the database, and prepare the required report. These costs could be paid for, at least partially, by the administrative fee authorized by this bill.
3. Unknown potential cost pressures depending on whether DBO analyzes the data it will collect and the findings of any such analysis.

COMMENTS:

1. Need for the bill: According to the author's office:

Over the last few years, institutional investors, such as Blackstone, have bought up billions of dollars-worth of single-family homes. Instead of renovating and reselling them or just waiting for the real estate market to recover, they have converted these properties into permanent rental homes. Of the five largest metropolitan areas in the U.S. where concentration of this type of investment is highest, three of them reside in California: Los Angeles, Riverside, and Sacramento.

At the time, the vast majority of these purchases were foreclosures or short sales; however, purchases of homes coming from natural sales have recently increased. The CEO of Colony American Homes, which is one of the largest single-family landlords in the country, said it himself, "the first phase was distressed homes, the second phase is acquiring homes in a more regular way." In October 2013, an institutional investor created the first triple-A-rated, mortgage-backed security supported by revenue from single-family rental properties. The emergence of a new form of mortgage-backed securities tied to single-family rentals is certain to have an impact on the housing market, communities, and tenants. A mortgage-backed security is created by pooling assets together and then selling interests in that pool to investors, who then receive regular payments from the asset pool. This process provides access to a much larger pool of investors than would otherwise be feasible, increasing liquidity and generally providing a less expensive source of funding than traditional borrowing from banks or private investors.

While institutional investors only represent a fraction of those in the housing market – midsized companies and small mom-and-pop investors who own less than 10 properties have historically been far more prevalent in most markets – securitization is likely to shift this balance. That being said, one institutional investor, Blackstone, has already become the largest single-family home owner in the country. In fact, some analysts predict the funding of single-family rental acquisitions through securitization will likely become a dominant model quickly, and thus, continuing to shrink the already short supply of homes.

Currently, there is nothing preventing institutional investors from continuing to buy as many single family homes as possible, typically three bedrooms and two baths. Leaving this area of law vacant has already limited the ability of low and moderate households the ability to buy a home that are now starting to get back on their feet. Families already have a difficult time trying to save up enough money for a down payment, having to compete against an institutional investor who has the financial backing of big banks and pension funds, just isn't fair from both a monetary standpoint and technological. For example, Oakland-based Starwood Waypoint said it has cut the time it takes to calculate a first bid on a house to eight minutes. The CEO stated, "We encourage our guys to make an offer before they see the house. I don't want to wait for anyone else. Our competitors are also fast."

The foreclosure crisis created massive inventories of foreclosure properties across the nation. Many of these foreclosed homes continue to find their way onto the housing market. Mortgage backed securities (MBS), the bundling of mortgages into a single financial instrument, contributed significantly to the housing bubble collapse that swept across the country. With MBS's currently out of favor, institutional investors are seeking other ways of investing in the housing market. The solution came in the form of investing in large portfolios of foreclosed homes and securitizing the rental income. The structure of various single-family rental securitizations (SFRS) is very similar to bonds issued from a single loan that are backed by portfolios of SFRS. The bonds typically have terms of two to three years with options for one-year extensions capped at five years total.

1. Impacts: What is the impact of large scale rental investment strategies on the housing market? According to Department of Finance data, California has over nine million single family homes. The estimated portfolio of homes turned to rentals owned by Invitation Homes, a subsidiary of Blackstone, is around 10,000-12,000 in California. The impact of rental securitizations on home prices is unclear. Projected occupancy rates and subsequent rental income has not lived up to expectations. Despite this, significant capital continues to flow into these investment opportunities.
2. Two issues not addressed in this bill, but that have major impacts on pricing are flipping and foreign cash buyers.
   1. Flipping: Flipping, the act of buying real estate at a below market price and selling at a higher price, has become increasing popular among investors. RealtyTrac, a real estate foreclosure marketplace, finds the total number of investors who completed at least one flip in 2015 was at the highest level since 2007, and the number of flips per investor was at the lowest level since 2008. Homes flipped in 2015 were on average purchased at a 26% discount below estimated market value and re-sold by the flipper at a 5% premium above estimated market value. Since the housing crash, investors have consistently made up a significant portion of home buyers, but they largely purchased homes to convert to rental property
   2. Foreign Investors: Another contributor to expensive housing in certain California markets has been the large influx of foreign cash buyers. According to data from the National Association of Realtors, during 2014/15 the average price foreign clients paid for a house was $500,000, compared to the overall U.S. average house price of $256,000. Approximately $54.5 billion of sales was attributed to non-resident foreigners, with resident foreigners accounting for $49.4 billion of sales. The bulk of purchases by international clients were all-cash, accounting for approximately 55% of reported foreign transactions.

Analysis Prepared by: William Herms / B. & F. / (916) 319-3081 FN: 0000602

Date of Hearing: May 17, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 354

Author:(Calderon) – As Amended Ver:May 1, 2017

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires institutional investors, as defined to register with the Department of Business Oversight (DBO) annually by providing a written statement including specified information. This bill defines institutional investors as a publicly traded company or corporation that is devoted to holding more than 100 single family residential properties in the state, and actually owns more than 100 such properties during the calendar year. This bill requires DBP to submit an annual report to the Legislature regarding the information collected, beginning December 1, 2018. This bill also authorizes DBO to charge a reasonable fee to administer the registration requirement.

FISCAL EFFECT:

1. One-time costs of $700,000 to DBO to develop a database to store the data. This cost could be paid for, at least partially, by the administrative fee authorized by this bill.
2. $500,000 annually for 4 positions at DBO to collect the data, maintain the database, and prepare the required report. These costs could be paid for, at least partially, by the administrative fee authorized by this bill.
3. Unknown potential cost pressures depending on whether DBO analyzes the data it will collect and the findings of any such analysis.

COMMENTS:

Background and Purpose. During and after the foreclosure crisis, companies were formed to purchase homes in foreclosure or short sales. These companies rent these homes and securitize the rental income. For example, according to the representative for one company, Blackstone, owns 10,000 to 12,000 rental homes in California and is acquiring about 300 additional homes per month nationwide. According to the author, "Over the last few years, institutional investors, such as Blackstone, have bought up billions of dollars-worth of single-family homes. Instead of renovating and reselling them or just waiting for the real estate market to recover, they have converted these properties into permanent rental homes. Of the five largest metropolitan areas in the U.S. where concentration of this type of investment is highest, three of them reside in California: Los Angeles, Riverside, and Sacramento.”

According to the author, leaving this area of law vacant has already limited the ability of low and moderate households to buy a home. Families already have a difficult time trying to save up enough money for a down payment, and it is not fair from both a monetary standpoint and technological, that they have to compete against an institutional investor who has the financial backing of big banks.

Analysis Prepared by: Jessica Peters / APPR. / (916) 319-2081

Date of Hearing: April 26, 2017

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 354 (

Author:Calderon) – As Amended Ver:April 18, 2017

SUBJECT: Institutional investors: housing

SUMMARY: Requires institutional investors, as defined, to register with the Department of Business Oversight (DBO) by providing a statement containing specified information. Specifically, this bill:

1. Defines “institutional investor” as a publicly traded company or corporation that holds or manages, on behalf of clients or for itself, more than 40 residential properties in the state that are occupied by renters and have a total value of more than $10 million.
2. Allows DBO to charge a reasonable fee to administer the registration program.
3. Requires institutional investors to provide information including, but not limited to, the total number of residential properties owned, the total number of properties occupied by renters, and the total number of properties purchased annually.

EXISTING LAW: States legislative findings and declarations that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state (Health and Safety Code Section 50001).

FISCAL EFFECT: Unknown.

COMMENTS:

Background:

During and after the foreclosure crisis companies like Blackstone were formed to purchase homes in foreclosure or short sales. These companies rent these homes and securitize the rental income. According to their representative, Blackstone owns 10,000 to 12,000 rental homes in California. Blackstone is buying homes in conventional sales and their rate of home acquisition is about 300 per month nationwide.

This bill would require institutional investors, defined as publicly traded companies or corporations that hold and manage more than 40 single-family residential properties totally more than 10 million in value to register with DBO and provide a list of information including the number of residential properties it owns, purchases, makes an offer on, and the value of the properties owned. The bill does specify what DBO will do with this information beyond collecting it.

Purpose of this bill: According to the author, "Over the last few years, institutional investors, such as Blackstone, have bought up billions of dollars-worth of single-family homes. Instead of renovating and reselling them or just waiting for the real estate market to recover, they have converted these properties into permanent rental homes. Of the five largest metropolitan areas in the U.S. where concentration of this type of investment is highest, three of them reside in California: Los Angeles, Riverside, and Sacramento.

At the time, the vast majority of these purchases were foreclosures or short sales; however, purchases of homes coming from natural sales have recently increased. The CEO of Colony American Homes, which is one of the largest single-family landlords in the country, said it himself, “the first phase was distressed homes, the second phase is acquiring homes in a more regular way.” In October 2013, an institutional investor created the first triple-A-rated, mortgage-backed security supported by revenue from single-family rental properties. The emergence of a new form of mortgage-backed securities tied to single-family rentals is certain to have an impact on the housing market, communities, and tenants. A mortgage-backed security is created by pooling assets together and then selling interests in that pool to investors, who then receive regular payments from the asset pool. This process provides access to a much larger pool of investors than would otherwise be feasible, increasing liquidity and generally providing a less expensive source of funding than traditional borrowing from banks or private investors.

While institutional investors only represent a fraction of those in the housing market – midsized companies and small mom-and-pop investors who own less than 10 properties have historically been far more prevalent in most markets – securitization is likely to shift this balance. That being said, one institutional investor, Blackstone, has already become the largest single-family home owner in the country. In fact, some analysts predict the funding of single-family rental acquisitions through securitization will likely become a dominant model quickly, and thus, continuing to shrink the already short supply of homes.

Currently, there is nothing preventing institutional investors from continuing to buy as many single family homes as possible, typically 3 bedrooms and 2 baths. Leaving this area of law vacant has already limited the ability of low and moderate households the ability to buy a home that are now starting to get back on their feet. Families already have a difficult time trying to save up enough money for a down payment, having to compete against an institutional investor who has the financial backing of big banks and pension funds, just isn’t fair from both a monetary standpoint and technological. For example, Oakland-based Starwood Waypoint said it has cut the time it takes to calculate a first bid on a house to eight minutes. The CEO stated, “We encourage our guys to make an offer before they see the house. I don’t want to wait for anyone else. Our competitors are also fast.”

Arguments in opposition: The National Rental home Council, representing "professional rental companies" that would be required to register with DBO are opposed to the premise that their members compete with first-time buyers. They state, "Our membership collectively purchased approximately 245 homes in California in the past six months, compared to total single-family home resales of 416,000." In addition, they point out that the largest companies in the industry are publicly traded companies and owned by shareholders and as such are required by the Securities and Exchange Commission to submit public filings which include data regarding home locations, occupancy rates, average rent, and total revenues.

Committee amendments: The committee may wish to add to the information that an institutional investor is required to provide to DBO: the total number of residential properties an institutional investors sells to an existing tenants. This would inform the degree to which homes owned by institutional investors are potentially a path to homeownership for renters. In addition, if one of the goals is to assess the impact of institutional investors on the market, the committee may also wish to require the registration to be made on an annual basis.

Related legislation:

AB 2282 (Calderon) 2015) – Would have established the Task Force on Institutional Investors within the Bureau of Real Estate and require the Task Force on Institutional Investors, on or before July 1, 2018, to submit to the Governor and the Legislature a report regarding data collection on large-scale buy-to rent investors, as specified. Defined “large-scale buy-to-rent investor” as a publicly traded company devoted to holding and managing single-family home rental properties, either on behalf of clients or for itself, and which owns more than 100 single-family homes during a calendar year. The bill died on the Senate Inactive File.

Double referred: This bill is double referred. It was heard in the Assembly Committee on Banking and Finance and passed out on a vote of 8-3 on April 17, 2017.

REGISTERED SUPPORT / OPPOSITION:

Support

California Community Builders

Opposition

National Rental Home Council

Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085

Date of Hearing: April 17, 2017

ASSEMBLY COMMITTEE ON BANKING AND FINANCE

Matthew Dababneh, Chair

ABPCA Bill Id:AB 354 (

Author:Calderon) – As Amended Ver:March 28, 2017

SUBJECT: Institutional investors: housing

SUMMARY: Requires institutional investors, as defined, to register with the Department of Business Oversight (DBO) by providing a statement containing specified information. Specifically, this bill:

1. Defines “institutional investor” as a company or corporation that owns more than 20 residential properties with a total value of more than $10 million in the state.
2. Allows DBO to charge a reasonable fee to administer the registration program.
3. Requires institutional investors to provide information including, but not limited to, the total number of residential properties owned, the total number of properties occupied by renters and the total number of properties purchased annually.

EXISTING LAW: States legislative findings and declarations that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state (Health and Safety Code Section 50001).

FISCAL EFFECT: Unknown

COMMENTS:

1. Need for the bill: According to the author’s office:

Over the last few years, institutional investors, such as Blackstone, have bought up billions of dollars-worth of single-family homes. Instead of renovating and reselling them or just waiting for the real estate market to recover, they have converted these properties into permanent rental homes. Of the five largest metropolitan areas in the U.S. where concentration of this type of investment is highest, three of them reside in California: Los Angeles, Riverside, and Sacramento.

At the time, the vast majority of these purchases were foreclosures or short sales; however, purchases of homes coming from natural sales have recently increased. The CEO of Colony American Homes, which is one of the largest single-family landlords in the country, said it himself, “the first phase was distressed homes, the second phase is acquiring homes in a more regular way.” In October 2013, an institutional investor created the first triple-A-rated, mortgage-backed security supported by revenue from single-family rental properties. The emergence of a new form of mortgage-backed securities tied to single-family rentals is certain to have an impact on the housing market, communities, and tenants. A mortgage-backed security is created by pooling assets together and then selling interests in that pool to investors, who then receive regular payments from the asset pool. This process provides access to a much larger pool of investors than would otherwise be feasible, increasing liquidity and generally providing a less expensive source of funding than traditional borrowing from banks or private investors.

While institutional investors only represent a fraction of those in the housing market – midsized companies and small mom-and-pop investors who own less than 10 properties have historically been far more prevalent in most markets – securitization is likely to shift this balance. That being said, one institutional investor, Blackstone, has already become the largest single-family home owner in the country. In fact, some analysts predict the funding of single-family rental acquisitions through securitization will likely become a dominant model quickly, and thus, continuing to shrink the already short supply of homes.

Currently, there is nothing preventing institutional investors from continuing to buy as many single family homes as possible, typically 3 bedrooms and 2 baths. Leaving this area of law vacant has already limited the ability of low and moderate households the ability to buy a home that are now starting to get back on their feet. Families already have a difficult time trying to save up enough money for a down payment, having to compete against an institutional investor who has the financial backing of big banks and pension funds, just isn’t fair from both a monetary standpoint and technological. For example, Oakland-based Starwood Waypoint said it has cut the time it takes to calculate a first bid on a house to eight minutes. The CEO stated, “We encourage our guys to make an offer before they see the house. I don’t want to wait for anyone else. Our competitors are also fast.”

The foreclosure crisis created massive inventories of foreclosure properties across the nation. Many of these foreclosed homes continue to find their way onto the housing market. Mortgage backed securities (MBS), the bundling of mortgages into a single financial instrument, contributed significantly to the housing bubble collapse that swept across the country. With MBS’s currently out of favor, institutional investors are seeking other ways of investing in the housing market. The solution came in the form of investing in large portfolios of foreclosed homes and securitizing the rental income. The structure of various single-family rental securitizations (SFRS) is very similar to bonds issued from a single loan that are backed by portfolios of SFRS. The bonds typically have terms of two to three years with options for one-year extensions capped at five years total.

1. Impacts: What is the impact of large scale rental investment strategies on the housing market? According to Department of Finance data, California has over nine million single family homes. The estimated portfolio of homes turned to rentals owned by Invitation Homes, a subsidiary of Blackstone, is around 10,000-12,000 in California. The impact of rental securitizations on home prices is unclear. Projected occupancy rates and subsequent rental income has not lived up to expectations. Despite this, significant capital continues to flow into these investment opportunities.

Two issues not addressed in this bill, but that have major impacts on pricing are flipping and foreign cash buyers.

• 1. Flipping: Flipping, the act of buying real estate at a below market price and selling at a higher price, has become increasing popular among investors. RealtyTrac, a real estate foreclosure marketplace, finds the total number of investors who completed at least one flip in 2015 was at the highest level since 2007, and the number of flips per investor was at the lowest level since 2008. Homes flipped in 2015 were on average purchased at a 26% discount below estimated market value and re-sold by the flipper at a 5% premium above estimated market value. Since the housing crash, investors have consistently made up a significant portion of home buyers, but they largely purchased homes to convert to rental property
  2. Foreign Investors: Another contributor to expensive housing in certain California markets has been the large influx of foreign cash buyers. According to data from the National Association of Realtors, during 2014/15 the average price foreign clients paid for a house was $500,000, compared to the overall U.S. average house price of $256,000.  Approximately $54.5 billion of sales was attributed to non-resident foreigners, with resident foreigners accounting for $49.4 billion of sales. The bulk of purchases by international clients were all-cash, accounting for approximately 55% of reported foreign transactions.

1. Amendments: The author’s office has informed the committee that it intends to make amendments in the Assembly Housing and Community Development Committee clarifying the definition of “institutional investor,” including increasing the number of properties owned to 100.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file

Opposition

California Apartment Association
National Rental Home Council

Analysis Prepared by: William Herms / B. & F. / (916) 319-3081