(pictured: Curt Schade)
In a classic case of exploiting opportunities springing from the GFC, a US manager has developed an institutional investment offering capitalising on some economic distortions in the US housing market. It is specialising in rental properties and distressed housing loans. Its numbers may surprise you.
Pretium Partners, founded by Don Mullen and Curt Schade in 2012, has already built a portfolio of about 17,000 homes, with about US$1.2 billion of equity, for its SFR 1 fund and 14,000 non-performing loans, with US$900 million of equity, for its PMC 1 fund.
Schade said on a visit to Australia last week to the promote the next offering to institutional investors, that their focus was on “single-family rentals” (houses), compared with the “multi-family residential” developments (apartment blocks) which have also sprung up as investment opportunities in the US because of the structural changes in the housing market.
Pretium, which is being advised in Australia by Mike Davis of Causeway, has built a sophisticated analytical system and database to facilitate an active acquisition-screening process to purchase the homes at a rate of 500 per month. Davis said that after meeting Schade’s team in New York last year, he was impressed by the extent of their analytics and in house real estate management capabilities.
“The opportunity has been driven by a range of factors, particularly much tighter bank lending for home buyers in the US,” he said. At Causeway they had built investment fund opportunities previously driven by the impact of regulatory requirements on banks and Davis said he sensed that this opportunity would suit Australian investors given our predisposition to real estate investing.
Schade said that the other key factor supporting the manager’s investment thesis was the mobility and age now of the oldest millennials (the largest US generation) who are in their early years of family and single home formation.
He also noted that since 2008 single-family housing starts had only been 50 per cent of their pre-GFC levels, which had led to significant undersupply.
By contrast, multi-family construction has recovered well and has been a great investment opportunity since 2009. Schade and his team now believe that the ‘catch up’ required in the single family sector will drive rental and price appreciation outperformance in the 17 south eastern and western regions that the firm focuses on in the US.
Pretium is seeking to raise US$1 billion for its SFR 2 fund from global investors over the next 6-9 months in a closed-end format.
