The time is right to buy houses, the Alaska Permanent Fund Corp. thinks.
It will soon be buying hundreds, if not thousands, of foreclosed properties, said Executive Director Mike Burns.
The permanent fund’s board of trustees, meeting in Anchorage last week, decided to make a bold move into some of the nation’s most distressed housing markets, from San Diego to Tampa.
“We are going to places that have been hit the hardest,” Burns said.
The idea, he said, is to buy foreclosed properties and rent them out while waiting for the real estate markets to improve. That should provide both ongoing income, and further profits when they’re later sold.
“We see the market has attractive pricing now,” he said.
The initial investment will be $400 million, about 1 percent of the $40 billion fund.
Some of the properties will need additional work, with most likely needing paint and carpet, he said, but “we’re not in the fixer-upper business.”
Burns said he recently toured some properties in Tucson, Ariz., and found a variety of conditions.
In one house, the former owners had removed both the dishwasher and garbage disposal, he said.
In another, though, it appeared as if the departing owners had prepared it for sale to new owners.
“The garage door openers were sitting on the kitchen counter, they’d cleaned the place — kind of breaks your heart, honestly,” Burns said.
In some cases they won’t know the home conditions until just before or after purchase, depending on jurisdictions.
“There’ll be a surprise in a lot of these houses,” he said.
Some of the houses available are in very nice neighborhoods, he said. The locations of the available houses will be one of the key factors in deciding which ones to purchase, he said.
The board this week gave conceptual approval to the new strategy, but the deal still needs to be finalized.
Burns said the new investment strategy wasn’t market timing, something the fund doesn’t do, but a recognition that various factors have made sales prices drop below what the single-family houses are worth.
“We are really looking for anomalies in the market,” he said.
That shows up in how the investment will be categorized internally, as part of the funds “special opportunities” bucket, rather than its more traditional “real estate” investments.
“When we created the allocation to special opportunities, the purpose was to create room within the fund where we could take advantage of unexpected investment opportunities such as this single-family homes strategy” said Bill Moran, who is both the board’s chair and president of Ketchikan’s First Bank.
Moran said the shift in consumer interest from owning to renting presented the fund with a “unique opportunity.”
The fund won’t own or purchase the homes directly, but will instead make an investment of up to $400 million in American Homes 4 Rent LLC, which already owns 1,000 single-family homes, said Laura Achee, spokeswoman for the fund.
Burns said he expects it to take as long as two years to make the purchases, and from 5-7 years before they’ll be sold.
This isn’t the first time the permanent fund had tried to make money from the housing crisis, Burns said.
When mortgage-backed securities dropped in value the fund purchased some and saw them rise in value as the housing market stabilized, he said.
• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com
Comments (21)
Add commentSo...
Now let's bail out the banks by purchasing the homes they repossessed then sat molding for months/years.
Good investment, morally wrong. Especially when dealing with banks that refused to help mortgage holders even though the government gave them billions. Wells Fargo for example...
I hope they look carefully
Investing millions of dollars is far beyond my capability.
I hope that investing our State's savings in American Homes 4 Rent is a good investment in good properties. I also hope that it is an honest and fair corporation.
We place a lot of trust in our Permanent Fund investors, let's hope they do the right thing not just for us and our profit, but for the people selling their homes.
history
I agree Wren. ahhh...5000 years from now our descendants will read about renting and how it was akin to share cropping...if humans survive that is.
Very Risky
I hope a LOT of research has gone into this. It smells of another bank bail out. Buying a house, renovating, then playing landlord is a tough gig that has caused many people grief. Foreclosure breaks your heart? Evictions aren't much sweeter. Speaking of evictions, do they know what an evictions costs and the time involved? How a house can be stripped to the studs in the time it takes to get the deadbeat out? I really think there are smarter investments out there.
A very bad
idea. Granted it is a small investment but personally I do not want to capitalize on others' misfortune. Really, are the rewards worthy of the means? Not to mention the vacancy & property management headaches?
By the way, did we not take a bath on real estate investment last decade?
insider buying
Yes, but all properties should be easily accessed with details on the WEB for we the Alaskans to scrutinize for our own possible purchase. Since it is our investment. How about a waived closing cost to Alaskans. Or a 5% discount. Or will all the cherry picking be done by insiders? You know, bundled foreclosures where 3 of 20 are great deals, and only admin knows which ones they are. Not saying,,,, Just saying
How about...
...They buy some choice places in sunny spots like San Diego and Honolulu and rent them out cheap to Alaskans as vacation getaways in the winter?
Wait a minute,,,,
Does it make any sense to even make a small investment in a real estate company registrered as foreign national company licenced to do business in the US since 1/5/12, corporate office in Malibu CA, registered in DE, and Maricopa County? Can you say good by to your money? Greed got us here and greed will get us where we're going. We would be giving foreign investors our money to make money off the struggles of former US homeowners? They take our jobs, I guess it only makes sense that they take our homes and we pay them rent, as long as we make a little money along the way. Wait a minute.....
Why not, olalaskan?
We let all sorts of foreign companies come to Alaska and extract our oil, minerals, and seafood resources - taking the best jobs and profits out of the country. What's the difference here?
The frustrating part is that
The frustrating part is that for a regular Alaskan to buy a forclosed home in Alaska, it is next to impossible unless you are independently wealthy, Here comes the PFD buying them, no doubt at rock bottom prices that none of us would ever be given, they'll fix em up and sell them to us for top dollar. I would rather they just allow me to buy it at rock bottom prices and allow banks to loan on them.
I agree, olalaskan, something
I agree, olalaskan, something doesn't smell right. It's hard to find any info on American Homes 4 Rent.
What's the rest of the story because this is a peculiar investment.
My Problem
My problem is these two rather conflicting statements...
"Some of the properties will need additional work, with most likely needing paint and carpet, he said, but “we’re not in the fixer-upper business.”"
and...
"In some cases they won’t know the home conditions until just before or after purchase, depending on jurisdictions.
“There’ll be a surprise in a lot of these houses,” he said."
So which is it? It seems to me that the new CIO is trying to make his mark. Luckily it is only 1% of the fund - otherwise I would be really concerned
Great. The fund wants to benefit from human suffering
As Ron Burgundy would say
You stay classy, Permanent Fund division.
It would be different
if they were going to do something humane, like let people move into the places as low-income housing, or let those who were known Biblically by the sub-prime lenders stay in their homes.
But THAT isn't going to happen. Because with the Fund crowd, it's about money for money's sake.
Shameful.
Kenb41
The Fund isn't supposed to be an instrument for social change. It's only charge is to maximize its returns for its shareholders, aka every man, woman, and child in Alaska.
Please, feel free to donate your dividend to charitable programs, or participate in pick, click, give (we do) if it bothers you so much.
The fund isn't supposed to be totally amoral
It's not supposed to put "rate of return" before all else, even common humanity.
This situation calls for some major reforms in how the fund works. It needs what Rabbi Michael Lerner would call a "New Bottom Line", that would measure profits in human rather than purely financial terms.
Why couldn't they let people live in the homes for low or no cost, in exchange for doing home improvement work? This would help a lot of displaced skilled workers.
Because
Because the Fund is not supposed to fund social programs. And while I think that your idea has merit in theory, talk about social investing is always problematic.
The Fund invests in companies that make tobacco products. Tobacco/Smoking causes lots of human misery for both smokers and non-smokers alike. Should the fund divest in companies that make tobacco products. What if that same company is also a food giant? How do you separate the two?
What about guns? Some people have a moral objection to gun manufacturers, especially in light of what is happening in Syria, the Sudans, Mexico, and in crime filled areas of our own country. Yet onther people have no problem with guns - proudly owning several.
What ends up happening is that it becomes a matter of personal judgement - and everyone has a different tollerance for what is acceptable.
What we each do in the end with the proceeds is how we make a difference for others.
You can't re-moralize fund proceeds earned by immoral means
simply by what you do, privately, with your dividend. It's bigger than that.
We should establish a social responsibility requirement for ALL fund investments.
At a bare minimum this should include
1)no investments in tobacco or other products injurious to human health;
2)no investments in countries with oppressive governments;
3)no investments in any companies that practice discrimination against their employees or anyone in the communities where they work(this would include no companies that practice "environmental racism", the practice of targeting minority communities for the location of hazardous waste sites or environmentally dangerous production facilities);
4)no investments in companies that bar union organizing and/or refuse to provide decent wages and safe working conditions for their employees);
5)no investments in any financial institutions that engage in predatory lending practices;
That still leaves a lot of good investments, since the growth of a company doesn't require that said company inflict pain on its customers, its employees, or its surroundings.
If we're going to have a corporate-dominated "market" economy, than that economy must ALSO be expected to have humane values, since what those corporations will do will pretty much create the conditions the rest of us will be forced to live under.
To reduce the whole thing to "money must be free to make money, that's all there is in the end", is to doom us all to a life that is utterly soulless and crushing. Human beings have a right to expect more from our existence than that.
nice kenb
well said. If only more people believed in a benevolent society bent towards the good of humanity. So many people believe humanity must do things that are profit geared with no thought for the effect on life itself.
about Anchorage
Well, as someone who comes into Anchorage from an outlying area, I support the idea that Anchorage should have a sales tax. I should be paying to support the services I use or may need to use when I come to Anchorage. Those costs should not be born only by Anchorage property owners. I'd say at least 3% IF the city significantly lowers property taxes. Sabrine from AmeriLoanSearch.
In addition to the things
In addition to the things mentioned by other commenters, another thing to be concerned about is that housing prices may not have hit bottom yet.
The recent fraudclosure settlement was supposed to unclog the foreclosure pipeline, but it has not. There is still a very large shadow inventory of houses sitting out there.
Oh well. As Olalaskan said, greed got us here and greed will get us where we're going. It seems we will never learn.