The idea was simple. Investors were to buy thousands of single-family homes at bargain prices during foreclosure catastrophe, get returns from rent for a number of years, and sell them at a better price then move on to the next.
As simple and attractive as the above plan may seem, there those who know this promising state of real estate has more to offer so according to CNBC, the big investors instead are uniting and this could propel the properties of those that still remain look potentially good-looking.
For example just last week, Arizona-based American Residential Properties, which possesses 8,938 rental housing units, and California-based American Homes 4 Rent, which holds 38,377 rental units have announced that they will be converging in a merger and the combined companies will own houses in 22 states. According to CNBC, the total expected equity market capitalization of the properties own by the merged companies would be $5.5 billion based on closing prices as of Dec. 2.
According to the analysts at Raymond James, the entity that acts as financial adviser to American Homes 4 Rent, say, "In our view, this is a very positive outcome for both AMH and ARPI shareholders, with substantial upside opportunities for earnings accretion over time. The sector's recent consolidation should only improve visibility, liquidity, and valuations among the remaining large players."
On the other hand, Wall Street shows a different view of the merger. On the day of the announcement AMH shares took a dip to nearly 5 percent.
Laurie Hawkes, the co-founder of American Residential Properties, saw the merger as a tough decision. She and CEO Stephen Schmitz will remain with the company until the merger is finalized. The current transition is taking a toll on the third-quarter earnings. At this period the company has shifted its focus on managing the rental properties it currently owns than buying other properties. But while Hawkes believes the rental sector has potential, she acknowledges that the challenge is always capital.
