Cash-rich investors surged into San Diego’s hot housing market. Here’s where they bought

Cash-rich investors surged into San Diego’s hot housing market. Here’s where they bought

The blistering housing market in San Diego County last year saw home prices increase at an astonishing pace, fueled by a variety of factors that include low supply, high demand and cheap money that lowered mortgage rates.

Another factor was also at play: investor groups, flush with far more cash resources than a typical home buyer, moved into the single-family home market and began purchasing homes and vacant lots for development.

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Sometimes properties are quickly fixed and flipped, and other times they are turned into rentals. It’s a trend seen in cities across the country to varying degrees, drawing criticism from housing advocates who see the investor groups exacerbating the already-tight market.

A Union-Tribune analysis of sales of properties zoned as single-family residences from January 2021 through April of this year shows investors and large corporations purchased 8 percent of the 11,000 single-family residential units sold in the city of San Diego.

Roughly 7 percent of all residential homes and properties sold countywide were purchased by investors, with some corporations buying hundreds of properties each.

Last year, corporations were purchasing about 6 percent of the homes sold in San Diego each month, with small spikes in August and November. Starting this year, data show investor activity surged, with the monthly average more than doubling to 14 percent of all homes sold since January.

Now, with rising interest rates creating a significant drag on the market, investor purchases might be heading for a slowdown, economists say, but the impact on communities and those who can’t afford to compete with cash-rich companies remains.

“At a certain point, people get frustrated and they give up,” said Bryce Acosta, a realtor with HomeSmart Realty West. “They just keep renting, or they leave the area and buy somewhere else.”

Nationwide, large corporate investors are snapping up nearly 1 in 7 homes sold in America’s metropolitan areas, according to a Washington Post analysis.

The Union-Tribune analysis examined 77,400 sale records from the county assessor to analyze where homes are being sold by ZIP code here, and who is purchasing them.

The ZIP code representing La Jolla had the highest proportion of investor-bought homes in the city, with corporations purchasing nearly 1 in 5 single-family homes sold in the area. The high rate likely reflects the demand for vacation rentals and other short-term rental options popular with tourists looking to stay close to the coast.

According to data from the San Diego Association of Governments, or SANDAG, more than 65 percent of La Jolla’s 43,400 residents are White. About 15 percent are Latino, 12 percent are Asian and less than 2 percent are Black.

Nearly half of the 18,100 households have an annual income of $100,000 or more.

Another coastal area, Mission Beach and Pacific Beach, had the fifth-highest percentage of investor purchases.

The ZIP code 92126, which represents the Mira Mesa area, northeast of La Jolla, ranks No. 2 with nearly 17 percent of the 575 residential sales involving investors. This is primarily due to one company, Lennar Homes of California Inc., a Miami-based real-estate company that primarily buys properties for new builds, buying 41 vacant residential lots in the 3Roots development off Miramar Road and Camino Santa Fe.

Due to data limitations, vacant lots zoned for single-family residential use are included in the analysis. In these few instances, developers may plan to add to the housing supply by building new homes.

The Morena-Bay Park area had the third-highest total, with 14.5 percent of all purchases made by investors.

Also topping the list are two ZIP codes in southeastern San Diego — 92102 and 92113. The northern region of 92102 encompasses Golden Hill, Sherman Heights, Stockton and Mount Hope, and is more diverse than most city areas.

More than half of the area’s 41,000 residents are Latino and nearly 10 percent are Black, SANDAG data show. It’s also a less affluent population. More than 80 percent of households have an annual income below $100,000.

Investors purchased 13 percent of the some 200 houses sold in the 92102 area. Directly south in 92113 — encompassing the Logan Heights community, where nearly 70 percent of residents are Latino — corporations purchased 12 percent of the 166 residential properties sold.

The Union-Tribune defined investors as any purchasers with “LLC,” “Corporate Trust,” “Inc,” “Association,” “Corporate Trustee” and “Joint Venture” in the listed name or address for purchasers in county data. Family trusts, which are more likely to be used by a single family that purchases and owns several properties, were not included in the analysis.

About 10 percent of all sales countywide included ownership transfers in which no money was exchanged, such as a property being moved from a single owner to a trust or business. These were not included in the analysis.

Some 3,300 sale records did not have proper or complete ZIP code information and were removed from the analysis. Another 100 homes did not have complete street address information and are not included in maps.

Purchaser names, entities and addresses can contain varying information for the same entity or individual owner. The Union-Tribune aggregated entities with the same address and identical — or nearly identical — names in its analysis to calculate entity totals.

Market influence

Investors buying homes, then either renting or reselling them, is nothing new. But the footprint in the housing market of corporate investors such as private equity firms, hedge funds or large corporations has grown substantially in recent years.

That has sparked criticism by housing advocates who say the cash-rich corporations skew the market by paying above-asking price for homes, fixing them up and — in some cases — putting them back on the market as rentals.

That can constrict the already tight supply of single-family homes, further increasing prices.

Real estate agent Rafael Perez poses for a photo within the Sherman Heights neighborhood.

Real estate agent Rafael Perez lives and sells homes in the Sherman Heights neighborhood, where he poses for a portrait on Sept. 28, 2022. The neighborhood’s ZIP code has seen a surge of investor activity in the single-home market.

(Meg McLaughlin / The San Diego Union-Tribune)

“They can waive inspection contingencies, purchase in cash and close in five days,” said Rafael Perez, a realtor and resident of Sherman Heights. “Those are things that an owner-occupier buyer does not generally have the ability to do.”

Investors go where the home prices are more affordable and where they can get more bang for the buck, said Noerena Limón, the executive vice president of public policy and industry relations at the National Association of Hispanic Real Estate Professionals, or NAHREP. (The group is an advertising partner of the Union-Tribune.) That often means communities where a majority of residents are minorities have historically had lower home values, making them targets for well-heeled investors, she said.

However, Limón said the root of the problem is an undersupply of housing, which pits individual homebuyers — who have a limit on how much they can spend — against investors with large cash reserves.

“We see this every day,” she said. “We are constantly collecting stories from our members to get a true pulse of what is going on in the community. They tell us horror stories of first-time home buyers who do everything right, save every penny. But they can’t compete with cash buyers, and that is what institutional investors are, cash buyers.”

A report by the Committee on Financial Services of the U.S. House of Representatives in June said that corporate ownership of single-family homes began to increase in the wake of the 2008 financial crisis and the housing foreclosure crisis.

By 2011, the report said, no single investor in the nation owned more than 1,000 homes. Most investors before then were smaller, mom-and-pop buyers who owned fewer than 10 homes.

By the end of the third quarter in 2021, the report said, five of the largest corporate investors — companies that include Invitation Homes, American Homes for Rent, and FirstKey Homes — together owned 280,000 homes nationally. Invitation Homes alone owned 81,000 properties.

Such large corporations that operate nationally do not appear in the San Diego County data analyzed by the newspaper. Instead the market for the time period examined shows the top buyers are limited liability companies whose members are not readily known.

One expert said that it is difficult to connect the increasing purchases by investors to rising home values.

“It’s hard to make a causal statement between investors and prices,” said Thomas Malone, an economist with the real estate tracking firm CoreLogic. “Everything has gone up in real estate, including investors. Investors obviously have some impact in prices. It seems impossible they would not.”

Buyers hidden behind LLCs

Who bought the homes and properties? Aside from the region’s top corporate purchaser, Lennar, a known entity in the housing business, it’s hard to tell. Most of the buyers are identified as limited liability companies, or LLCs, a type of business ownership structure that protects members from most legal liability. It also shields the identities of individual members.

Oyeren LLC was the second-largest purchaser of homes in the Union-Tribune analysis, buying 33 properties for a total of $26 million. It’s unclear who is behind the LLC.

Records with the secretary of state show the company registered with the state in August 2020 as an out-of-state entity. The records show the company formed two months earlier as a registered LLC in Wyoming, with an address in Sheridan, Wyo., that is a state corporations office.

Wyoming law does not require LLC members to disclose who they are. The agent for service, which serves as the main contact for anyone wanting to communicate with the owners, declined to answer questions when reached by phone.

The history of one home purchase made during the period analyzed by the Union-Tribune shows how quickly investors can buy a house and book profit.

Street view of a home on Mount La Platta Drive in Clairemont on Sept. 22, 2022

Street view of a home on Mount La Platta Drive in Clairemont on Sept. 22, 2022, that was bought by an LLC in October 2021 and resold less than a year later.

(Howard Lipin / For The San Diego Union-Tribune)

In October 2021, an entity called Redwood Holdings LLC bought a four-bedroom, two-bath, 1,400-square-foot home at 4874 Mount La Platta Drive in Clairemont for $791,000.

It was one of 17 purchases totaling $16.6 million made by Redwood during the time period analyzed by the Union-Tribune. In July the home was sold for $1.2 million.

Records on file with the secretary of state show Redwood has the same address as Wedgewood Inc., a Redondo Beach-based real estate company that is one of the biggest house flippers in the state.

Wedgewood has bought, remodeled and resold hundreds of homes in the Bay Area and Southern California. The company has been accused of unlawfully evicting tenants from homes it purchased at foreclosure auctions. In December, it agreed to a $3.5 million settlement with the state attorney general over such unlawful eviction claims.

The company did not respond to an email seeking comment on its San Diego purchases.

Large corporate buyers have not been a large presence in the San Diego market for years, said Brian Daly, CEO of WeRevive and the managing partner of TSDHB11 LLC. That LLC purchased 18 properties for $16.6 million in the Union-Tribune analysis.

He said his company, which also includes a construction company, purchases homes that are run-down or outdated, fixes them up and resells them. Daly said that, with the increase in interest rates over the past several months, investor purchases have also slowed down.

He said he was aware of the larger criticism that corporate investors exacerbate the affordability problem in the local housing market but does not agree with it.

“Ultimately if you talk to anyone in our space, they think they are doing some good,” he said. “We are taking a house that most of the time is not habitable, making it convenient for a seller that wants convenience, and a buyer that wants convenience.”

Cash offers are convenient for sellers because the sale is not conditioned on the lender for the prospective buyer approving the purchase, he said. And when the property is remodeled and sold, the new buyers get a turn-key home that does not need work.

All of the 18 properties TSDHB11 purchased were sold and not turned into rentals. The company is now eyeing properties in the city that can qualify for constructing accessory dwelling units, smaller units that can be built on single-family home lots, Daly said. Such units are usually rented out.

The practice is controversial in some older single-family home neighborhoods, such as Talmadge or University Heights, where residents complain the additional units change the character of the neighborhoods.

Critics also say the city’s rules governing ADUs, which allow one “bonus” ADU for every rent-restricted ADU a property owner builds, are too generous and advantage investors — who have the cash to construct such extra units — over home buyers.

The prevalence of corporate buyers in the local housing market may be leveling off. Median home prices in August decreased for the third month in a row to $799,000, according to CoreLogic. While down from the all-time high of $850,000 in May, prices have still risen by 10.2 percent annually.

“It seems like it may be coming to an end now,” Malone, the CoreLogic economist, said of the investor surge in the market. Investors can be more sensitive to interest rate increases and more hesitant to jump in, he said.

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