Local Home-Rental Firm Backed by Billionaire Readies IPO

American Homes 4 Rent Inc. is packing up the moving van. The company is slated to take over a 20,000-square-foot space in Agoura Hills June 1, moving most of its operations from its 4,000-square-foot office in Malibu. The firm has grown in the last five years into one of the largest owner-operators of single-family home rentals. And it’s growing not only in size, but aspirations. The privately held company announced last month that it plans to file for an initial public offering by early June, and will use the capital to fuel further acquisitions. Co-founded by B. Wayne Hughes – who made his fortune from Glendale storage giant Public Storage Inc. – the firm is capitalizing on a trend in the real estate market that took hold during the recession: corporate home ownership. Along with market leader Invitation Homes LP of Dallas, American Homes went on a buying spree during the downturn, gobbling up large chunks of housing inventory, then turning around and renting them to tenants who could no longer afford to own their own home. Now the second-largest owner of single-family homes in the country behind Invitation, American Homes has focused on a very specific model house: homes that don’t need too much rehabbing, preferably in up-market areas, with the presence of a homeowners association to ensure tenants don’t let the properties fall into disrepair. By most estimates, it has acquired nearly 10,000 of these homes. By contrast, rival Invitation Homes, owned by New York private equity firm Blackstone Group LP, has focused on the foreclosure and rehab market. But now, with the housing market on an upswing and inventory reaching historic lows – less than two months worth through much of the Southland – some are worried about the hot new investment focus. “The impact has been to reduce what’s available, and a lot of cities are concerned,” said Paul Herrera, government affairs and public relations director at trade group Inland Valleys Association of Realtors. “You have a lot of renters and a lot of absentee landlords who aren’t part of the community.” Team work The 79-year-old Hughes founded Public Storage in 1972, and grew the company to more than 2,000 properties. It now has a market capitalization of about $26 billion. In 1983, it spun off PS Business Parks Inc., a publicly traded real estate investment trust that manages more than 19.6 million feet of commercial properties in eight states. Also headquartered in Glendale, the company has a market capitalization of $1.9 billion. Hughes stepped down as chairman of Public Storage in 2011, and last year became chairman emeritus, handing over much of his stock to his daughter, Tamara Hughes Gustavson and son, Bradley Wayne Hughes Jr. But the self-made billionaire isn’t done yet. Hughes, worth $1.95 billion according to Forbes, incorporated American Homes as a private real estate investment trust last year. Although he spends more than half of his time in Kentucky, where he owns a horse farm, he is chairman of American Homes, and brought in leadership from Public Storage to oversee the company’s rapid expansion. David Singelyn, chief executive and co-founder of American Homes, spent much of his career at Public Storage, as treasurer and later as head of Public Storage Canada. In 2005, he co-founded another venture, American Commercial Equities Management LLC, with Hughes. That firm manages retail and mixed-use properties in Hawaii and California. Chief Operating Officer John Corrigan was previously chief financial officer at Public Storage. Executive Vice President David Goldberg still serves as general counsel for Public Storage. Executive Vice President Marvin Lotz and Chief Legal Officer Sara Vogt-Lowell also have ties to the company. While Hughes assembled an experienced team, he hasn’t funded American Homes with his personal wealth. The firm last year signed a joint agreement with Alaska Permanent Fund Corp., a Juneau, Alaska company that administers oil revenues for investment on behalf of all Alaskans. The fund agreed in June 2012 to provide up to $400 million to American Homes to buy additional properties. In November, it upped its investment to $600 million. Fund officials think it’s a solid investment. “The reported shift in consumer interest from owning homes to renting, combined with the surplus of single-family homes in many markets has created this unique opportunity,” said Alaska Permanent Fund Board Chairman Bill Moran, in a statement at the time of the initial investment. American Homes has not disclosed revenues and did not return calls seeking comment, but if its 10,000 homes were to rent conservatively at $1,000 a month, revenue could hit $120 million annually. Rapid expansion American Homes has been operating at a Pacific Coast Highway office building since its founding. It will move to a building at 30601 Agoura Road in an office park. Advertisements for new positions at the company are all over Internet job-postings boards – with openings from coast to coast, not just at headquarters. It has 12 property management offices across the country, near each of its major markets. The company has operations in Arizona, Georgia, Nevada, Texas, Illinois, Indiana and Florida, and has recently started acquiring properties elsewhere, including California. Still, it has yet to make much of a dent in its own back yard. Invitation Homes has purchased more than 200 homes in the San Fernando Valley, according to the company’s listings. Inventory is historically low in the San Fernando and Santa Clarita valleys, according to February data from the Southland Regional Association of Realtors in Van Nuys. Foreclosures are also down in the area. Lotus Lou, spokeswoman for the California Association of Realtors, noted that the Valley isn’t exactly the ideal market for institutional investors of this kind. “This is happening primarily in Riverside and San Bernardino counties,” she said. “There, quite a few sales have gone through.” Still, there is a growing belief that the level of oversupply that led to the establishment of corporate home ownership is ratcheting down all over the country. Analysts have been warning of an impending shortage of properties for months. In October, Stephen Kim, an analyst with New York firm Barclays Capital Inc., said in a note that “in our view, the housing market had undergone a dramatic over-correction during the prior five years, resulting in pent-up demand for housing purchases that would spark a rapid rise in housing starts.” There also is competition from corporate rivals that want to buy homes and rent them. Scottsdale, Ariz. company American Residential Properties Inc. announced this month it planned to go public. And Minnesota REIT Silver Bay Realty Trust went public in December, raising $245 million that it has used to acquire 2,500 homes, with plans to acquire more. So it may be a race to acquire what is left. American Homes 4 Rent issued a statement Feb. 27, indicating that it would file its registration statement with the Securities and Exchange Commission within 60 days. Herrera, the government affairs director at Inland Valleys Association of Realtors, believes companies like American Homes will get inventory – though at the expense of traditional homeowners who need mortgages. “These (corporate) investors are paying cash,” he said. “These investors can come in and close the transactions, even as current values go up. It’s a math problem. They look at what the costs are, and if the numbers make sense, they’re going to make the transaction.”