When The Powder Keg Explodes
As investors, we hear a lot about “dry powder” waiting on the sidelines. Once investors feel confident the end of the “correction” in the real estate market is in sight and rates have stabilized within a reasonable range, the buying will resume. But how much dry powder is on the sidelines?
Tricon Residential may be a Canadian company, but they are one of the largest property aggregation companies in America owning more than 35,000 residential properties. CEO Gary Berman disclosed to Business Insider in a recent interview that the company is “sitting on nearly $3 billion of dry powder that it plans to spend on thousands more of homes when the time is right.” While there are only a handful of behemoths the size of Tricon, there are thousands of institutional-backed residential investment companies waiting to redeploy capital once the economic indicators signal it’s go-time.
I recently returned from the IMN Single Family Rental Forum in Scottsdale. The bi-annual conference primarily caters to family office and hedge fund backed real estate investment firms whose primary focus is to identify, acquire, renovate, stabilize, and refinance large rental property portfolios into long term portfolio loans (basically the BRRRR method on steroids). Most of these institutions have by and large been on pause with their investment activities since late summer. However, the sentiment I gathered from the conference is that purchasing activity is getting ready to ramp up next year.
With rates beginning to stabilize, long-term investors can gain the confidence to be able to forecast investment returns. However, the inventory is still tight in most markets. Once the institutions begin purchasing again, the landscape becomes competitive for all buyers. There’s a common saying for long-term investors as of late in this climate, “date the rate, marry the house.”