Oliver Chang, the former head of U.S. housing strategy at Morgan Stanley, on Wednesday announced the opening of an investment firm that intends to spend up to $1 billion to acquire distressed, single-family homes over the next two years.
Sylvan Road Capital is launching with a $300 million investment from an undisclosed private equity firm, the new firm said.
The new asset management firm will seek to acquire foreclosed homes across the United States with an eye toward operating them as rental properties.
Chang's move comes at a time when many hedge funds and private equity firms are raising money to acquire foreclosed homes with the intention of renting them out for several years before selling them as the housing recovery takes hold.
Hedge funds and other institutional investors have embraced the buy-to-rent model as an asset class for their solid income streams at a time when bond yields have plunged.
But some wonder whether institutional investors are overstating the potential for making money with foreclosed homes, given that historically it has been an industry populated by local entrepreneurs.
"America is moving toward a rentership society, and I believe the opportunity to purchase and professionally manage single-family, rental homes represents one of the most compelling investment opportunities across all asset classes," Chang said.
In May, Reuters reported that Chang was leaving Morgan Stanley to launch a so-called buy-to-rent fund. And other Wall Street executives who had been involved with the housing market are doing something similar.
Former Goldman Sachs Group Inc. mortgage executive Donald Mullen is trying to raise $500 million for a foreclosed home fund. Goldman Sachs is helping its former executive market the fund to investors.
A Goldman Sachs wealth management customer, who has seen marketing documents for Mullen's fund, said Goldman employees may invest as much as $100 million into the fund called Fundamental REO Access fund. The new fund requires investors to keep their money locked up for a minimum of eight years, the Goldman Sachs customer said.
One criticism about the rush of institutional money into the market for foreclosed homes is that hedge funds and private equity shops lack the operational wherewithal to become landlords. There is concern that big money investors will not have the ability to manage a large portfolio of single-family homes.
Chang, in beginning his firm, is trying to deal with that issue by partnering with three members of the Atlanta-based Delmar Realty Advisors, a firm that has focused on buying and extensively renovating highly distressed single-family properties.
"My partners have been in the single-family real estate business for nearly two decades and have built a best-in-class acquisition, renovation and management platform specifically designed for these properties," Chang said in a statement announcing the new firm.
(Reporting By Jennifer Ablan and Matthew Goldstein)