Institutional investors — non-lender buyers who have purchased 10 or more homes over the past 12 months — have hit the Denver real estate market in a big way during the past year, according to RealtyTrac.
In a report released Thursday, RealtyTrac said institutional investor activity in metro Denver was 20.1 percent higher in January than a year ago. By contrast, institutional investor purchases nationally reached a 22-month low in January.
Institutional buyers were behind 12.9 percent of home sales in metro Denver. That contrasts with an 8.2 percent rate in Colorado and a 5.2 percent rate nationally, according to the California-based provider of real estate data.
Ron Throupe, an associate professor at the University of Denver’s Daniels College of Business, said institutional entities — primarily hedge funds and local investment firms — have been busy buying distressed homes in the Denver metro area for a couple of years and then renting them in a tight market with big returns.
“What is going on is that the private people who tend to do flips — buy something and then sell it — are getting out-bid on the foreclosures and distressed sales” because institutional investors don’t require as great a return, said Throupe.
The flippers are looking for a return of 20 percent from an immediate sale, Throupe said, while the institutions are looking for an 8 percent return on the homes they hold and rent.
As was the case last year, all-cash deals still remain a big part of the market. They accounted for three out of 10 sales in Colorado and 27.2 percent of sales in metro Denver in January, below the U.S. average of 44.4 percent.
“It is easy to outbid somebody if you come to the deal with a bunch of cash,” Colorado Division of Housing economist Ryan McMaken said. “If you have a motivated seller, and someone comes to you with a bunch of cash, who are you going to pick?”
RealtyTrac vice president Daren Blomquist said Thursday that investors who previously focused in areas such as Phoenix and Atlanta, where foreclosures were cheap and plentiful, have turned their attention to Denver, where there are many starter homes available priced at $200,000 or less.
The Denver market, he said, also has “strong underlying market fundamentals, including low vacancy rates, low unemployment and solid job growth.”
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