- This institutional homebuyer is selling off so fast it's creating inventory in some regional pockets. But why?
This institutional homebuyer is selling off so fast it's creating inventory in some regional pockets. But why?
Institutional landlords aren't flooding the housing market with inventory, but there are exceptions like VineBrook Homes
A few weeks ago, ResiClub wrote an article about how the slowdown in institutional homebuying hasn't translated into a massive flood of U.S. inventory. After all, two of the nation’s biggest publicly traded operators, American Homes 4 Rent (which owns 59,092 homes) and Invitation Homes (which owns 84,697 homes), were once again net buyers in Q3 2023 after several quarters of net selling.
But that’s nationally.
On a regional level, some operators are selling off enough inventory that it's making an impact. That’s according to Parcl Labs, a startup that’s building and producing some of the best residential real estate databases and analytics in the game.
According to Parcl Labs, VineBrook Homes is one such operator actively offloading a chunk of their portfolio, and they are doing so quite swiftly. In fact, there are 20 U.S. ZIP codes where VineBrook Homes makes up at least 10% of all resale listings currently on the market. In Milwaukee’s 53218 ZIP code, that figure is 31%.
In these 20 ZIP codes, where VineBrook Homes makes up at least 10% of all resale listings, they are also marking down a lot of these listings.
In Milwaukee’s 53218 ZIP code, where VineBrook Homes owns 31% of the over 100 resale listings currently on the market, they changed the price on 86% of those listings—with the typical unit seeing a 17% price cut, according to Parcl Labs.
Unlike American Homes 4 Rent and Invitation Homes, VineBrook Homes Trust was still a net seller in Q3 2023. On a net basis, VineBrook Homes Trust reduced its portfolio by 858 homes in Q3 2023, after reducing it by 524 homes in Q2 2023. That’s a significant shift from the Pandemic Housing Boom era when VineBrook Homes Trust increased its total portfolio by 2,211 homes in Q4 2021 and 4,272 homes in Q1 2022.
VineBrook Homes Trust ended September with 25,716 homes in its ownership. Within its portfolio, VineBrook Homes holds 23,147 homes, while NexPoint Homes owns 2,569 homes.
“VineBrook is a prime example of a borrower/fund becoming over-extended due to rates going up,” says Noel Christopher, one of the nation's leading thought leaders in both the single-family rental space (SFR) and the build-to-rent space (BTR). “With VineBrook it's in the public record, they are out of the bounds of their loan DCSR and need to make moves to stay within the liquidity requirements for the loan. It's clear what they have to do. Either raise more capital or sell assets. Fortunately, it's a good time to sell. They will get top dollar for most of these homes even if they sell at a 10% discount. They will likely at least hit their cost basis or more when selling. They are not selling in bulk; no reason to. Selling the homes one by one is the best way to maximize value.”
Earlier this month, VineBrook Homes Trust admitted that the firm doesn’t have enough liquid capital ready to meet its debt requirements. In its third quarter filing, it wrote: “The Company has significant debt obligations coming due on the Warehouse Facility of approximately $1.2 billion within 12 months of the financial statement issuance date. As of the date of issuance, the company does not have sufficient liquidity to satisfy these obligations. In order to satisfy obligations as they mature, management intends to evaluate its options and may seek to… sell homes from its portfolio and pay down debt balances with the net sale proceeds.”
Christopher goes on to tell ResiClub that: “VineBrook bought a lot of homes in the last four years. Like many SFR [single-family rental] operators, they purchased faster than they could rehab and stabilize. So, very quickly there is a subset of the portfolio that becomes a strain on the overall portfolio and loan. This is why, from what I hear on the street, many homes they sell are non-performing rentals that need to be rehabbed. This makes sense to move these homes first. Is this news? Yes. Is it a surprise? No. Do I believe VineBrook is in real trouble? No.”
VineBrook isn’t the only operator in a pinch that needs to sell off some homes.
“If we think VineBrook is the only SFR portfolio holder in this position, you must be joking,” Christopher tells ResiClub. “Many operators out there are in the same position as VineBrook. They may not publicly state this, but many are dealing with it. It's the typical game that all large commercial real estate investors must play. Because these are all single-family homes, culling the portfolio to satisfy the bank's liquidity requirements is much easier. A billion dollars of single-family rentals are much easier to sell one-by-one on the open market than a billion dollars of multi-family rentals. This validates the SFR thesis. In times like these, groups like VineBrook can quickly reposition, raise more capital, and redeploy with lessons learned.”
One regional pocket where VineBrook is selling off a lot of homes is the 45211 ZIP code, a lower-income community located just 15 minutes outside of downtown Cincinnati.
The selloff in the 45211 ZIP code comes just months after Cincinnati announced in January it would sue VineBrook Homes, which the city government said owned “more than 5% of all housing stock in some communities” and “has an extensive history of building, health, and safety code violations.”
Back in January, Cincinnati Mayor Aftab Pureval wrote the following: “We have no tolerance for investors who come into Cincinnati, let properties degrade, and exploit tenants. VineBrook’s neglectful behavior has caused significant harm to renters, and the City of Cincinnati will fight back with everything we have to protect our residents.”
In that January press release, city officials claimed VineBrook Homes owned “950 properties in Cincinnati.” According to data ResiClub pulled from the Hamilton County Auditor this week, VineBrook Homes (under the name VB One LLC) owns 702 homes in Hamilton County, Ohio. (Cincinnati makes up just under half of the county's population).
VineBrook Homes asked the Ohio judge this spring to throw out the suit, calling it “a broad overreach of government authority” and an attempt to “shake it down for money.”
The single-family homes that VineBrook is selling off tend to be cheaper entry-level homes. That’s by design: VineBrook has leaned into that segment of the market (see the slide below from their July 2023 investor presentation).
Where does VineBrook have the most homes for sale?
According to Parcl Labs, VineBrook has the most homes for sale in Jackson, Miss.; Pittsburgh; Milwaukee; St. Louis; and Columbia, S.C.
One of the features of the ResiClub Pro membership is access to the Lance Lambert House Price Tracker. The beta version of the tracker has metro-level (894 metro/micro areas) and county-level (3,063 counties) house price analysis.