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VOL. 127 | NO. 221 | Monday, November 12, 2012

Expert: Investors Confound Housing

By Sarah Baker

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The role of investor-driven neighborhoods in Memphis is growing, and the impact on different kinds of neighborhoods is largely unstudied and unknown.

For instance, what does it mean that going into 2012, 54 percent of residential property sales were accounted for by investor purchases from the Real Estate Owned (REO) inventory of foreclosing lenders?

And what are the long-term consequences – for neighborhood housing markets, property values and quality of life for residents – when single-family properties accelerate their transition to the rental market? What does that do to the character of the neighborhood?

Dr. Phyllis Betts, founding director of the University of Memphis’ Center for Community Building & Neighborhood Action (CBANA), touched on some of these issues Thursday, Nov. 8, at real estate information company Chandler Reports’ third quarter “Master Your Market” seminar.

Memphis’ vacancy rate has nearly doubled in the past 10 years and currently tops 14 percent. Many local firms tout their ability to transform vacant, bank-owned property into an occupied space, thus saving neighborhoods from impending blight. But Betts said those generalizations vary widely by neighborhood.

“Investment activity cannot be understood apart from the neighborhood context in which it takes place,” she said. “You’ve got different dynamics from neighborhood to neighborhood.”

In 2000, 55.8 percent of Memphis homes were owner-occupied, according to the U.S. Census. In 2010, that total fell 7 percent to 51.9.

Betts said since household growth has been stagnant in Memphis, very few people actually say, ‘What’s the impact of this transition to the rental market on the apartment market?’”

“We think the rug has been pulled out from under the apartment market, particularly in airport city and the Whitehaven/Winchester area, where distressed properties are everywhere and where even the good occupancy is at about 92 percent,” Betts said. “Occupancy, profitability, upkeep and management of single-family rental properties and apartment complexes impacts quality of life in neighborhoods, but has received relatively little attention as we focus on single-family and as a community development issue.”

The bottom line, Betts said, is that so far, the firms executing the investment deals have driven the narrative to advance their own objectives.

“Some of the news coverage makes investors out to be white knights, that investors are coming to the rescue of neighborhoods with high vacancies,” Betts said. “Others are eager to criticize, particularly out-of-state investors. Are they white knights, or are they more like corporate raiders? It’s probably going to be something in between.”

According to CBANA research, Shelby County had 4,635 foreclosures, or substitute trustee deeds, in 2010. As of June 14, 444 were still bank-owned; 1,238 were old out of REO and remain with original purchaser; 1,612 were sold out of REO and resold on same day (also known as same-day flipping); 544 were resold within 60 days; and 797 were resold after 60 days.

“This begins to give us some idea of one investor pattern,” Betts said. “It’s indicative of the aggressive and high demand resale strategy.”

Betts said the question on the table by the Federal Reserve and other policy experts are: in neighborhoods with high percentage of foreclosures remaining REO, should investors be invited to play a special role? The Memphis City Council has even been looking into providing payment-in-lieu-of-taxes (PILOT) incentives to single-family home investors.

“Mayor (A C) Wharton (Jr.) has said a lot of positive things about attracting more investors because he knows the city has a lot of vacancy and that vacancy in general isn’t a good thing for neighborhoods,” she said.

Then there’s the $4.5 million that Wells Fargo is making available to support affordable home ownership.

“It’ll be interesting to see how that plays out, how that fund is made available to whom under what circumstances,” Betts said. “United Housing is going to be handling that, so we’ll see if we can avoid some of the perils of the past and what will we learn here in terms of that housing supply. The default position right now is that it’s on the investor pathway.”

Meanwhile, there are ongoing code enforcement problems with blighted homes owned by out-of-state investors. Betts used an example of a house at 3403 Dobbin Ferry owned by Willie and Sadie Harrison of Chicago that was condemned on April 6, 2006. Real estate taxes, along with weed assessments and other fees have been unpaid since 2005 and delinquent in excess of $23,000, but no tax sale is scheduled.

A nuisance case was filed by the city of Memphis on Feb. 21, but the city was unable to obtain service of process on the out-of-state owners and the case has been abandoned.

“There is very little accountability in the system,” Betts said. “The default registration is on the table, it’s likely going to have to require some legislation in Nashville.”

For more CBANA research and data, go to http://cbana.memphis.edu.

Chandler Reports is a division of The Daily News Publishing Co. Inc.

PROPERTY SALES 0 133 1,342
MORTGAGES 0 131 1,047