A corporation recently acquired by the world’s biggest real estate investor has snapped up 108 houses in the frenzied Colorado Springs market since October, and in some cases paid over the asking price.
HPA US1 LLC paid nearly $41 million for the homes, which are scattered across El Paso County, from just west of Interstate 25 to Peyton, and from Northgate to Fountain.
Corporations buying single-family homes and then renting them is nothing new, but HPA’s activities document that a corporate buyer has been a player in the local real estate scene.
HPA, however, doesn’t simply assemble a stable of properties to rent; rather, it offers an opportunity to buy to its renters who otherwise might have difficulty qualifying for a mortgage.
In June, Blackstone Real Estate Income Trust (BREIT), part of the Blackstone Group, announced it would acquire HPA, which owns 17,000 homes nationwide, for $6 billion. The deal was sealed the week of July 12.
Blackstone’s real estate Senior Managing Director Jacob Werner says in a release the firm would continue the rent-to-own program and work with HPA to “further invest in the properties and continue its role as a valuable resource for people considering home purchases.”
After the 2008 recession when many people lost their homes to foreclosure, corporations started buying up houses. The New York Post reported in July 2020 that Blackstone Group created Invitation Homes roughly a decade ago and went on a $10 billion buying spree, purchasing $150 million worth of houses per week.
The Post also reported that corporations bought one out of every 10 suburban homes sold in 2018.
With values exploding, it’s no surprise that corporate buyers would be interested in today’s real estate market, and Colorado Springs, too, has seen sharp rises.
Greatcoloradohomes.com reports that Colorado Springs currently offers “the strongest seller’s market that we have ever seen.” The website said only 777 homes were for sale recently, just over half the number for sale during that same time a year ago.
Current market conditions stem from the COVID-19 pandemic, which slowed people’s movement and saw cost increases for lumber and other homebuilding materials, leading to a shortage of inventory.
Realtor.com’s June 2021 data show the median list price of homes in Colorado Springs on their platform is $400,000, a 14.3 percent increase over last year, and that the median sold price stood at $492,000.
Stories abound about local sellers entertaining multiple offers that are tens of thousands of dollars over asking price.
But despite the hyperventilating market, Colorado Springs thus far hasn’t seen the most prolific corporate buyers enter the market, according to El Paso County Assessor’s Office records. Those active players include Brookfield Asset Management, Nuveen Real Estate and Tricon Residential, according to Bloomberg News, none of which own property here.
But HPA has acquired at least 108 homes since last October, 91 of which were purchased this year. And that doesn’t include deals that have closed in the last several weeks but haven’t yet shown up on assessor property records.
Prices HPA paid range from $258,500 to $500,000, so the company aims squarely at the middle-income market.
HPA paid $258,500 in October for a home in Fountain with three bedrooms, one bath and no garage. Real estate website Zillow reports the house’s value today is $311,600.
HPA paid $500,000 in March for a two-story in Meridian Ranch northeast of Colorado Springs with four bedrooms, 3.5 baths and a three-car garage and a current reported value of $617,600 by Zillow.
At least one property HPA purchased hasn’t gained value — a house on the city’s east side for which it paid $430,000 in April and which Zillow how reports is worth $423,400.
HPA also pays more than market value as reported by the Assessor’s Office, though assessor values are generally behind the market by roughly 15 percent. For example, HPA bought a house in Meridian Ranch for $480,000 in May; the assessor lists market value at $373,145.
Unlike other corporate players, though, HPA doesn’t intend to keep the homes as rentals indefinitely, but rather offers its tenants the option to buy the homes, Bloomberg reports.
HPA’s website says the company “is committed to making homeownership a reality for more people.
“Our process is easy, transparent, and built on a foundation of choice and flexibility,” it says. “Home Partners is helping more people get into great homes, in neighborhoods they love, with the opportunity to build a more secure financial future.”
Renters lease a home for three to five one-year terms, depending on which state they’re living in, and then purchase the home from HPA “at any time at a predetermined price.” Potential buyers must go through a credit check and application process as would any homebuyer.
George Nehme, chair of the Pikes Peak Association of Realtors board, says HPA’s program fills a gap in the homeownership world.
“The HPA helps buyers that are in a credit crunch where they’re not qualifying [to buy],” he says. “It helps them get themselves situated to buy the home from HPA.”
HPA’s site contains a detailed guide to properties it’s interested in buying. New construction, for example, must be 100 percent complete, and the newly built homes must have central air. HPA won’t buy condos, and caps payment in Colorado Springs at $500,000 per home. Each city in which it buys has a different cap. In Denver, the only other Colorado city where HPA buys homes, the cap is $550,000.
Prime targets for purchase can’t be located close to structures that would impair value, such as industrial buildings, high-traffic roads, railroads or airport runways. Nor can they have dirt driveways or be foreclosed or probated properties. HPA doesn’t buy manufactured housing. The guide also covers everything from appliances to fences.
A check of the Better Business Bureau national website shows dozens of complaints about HPA, largely surrounding the $99 nonrefundable application fee, which an HPA representative explains on the site covers the cost of running a credit check and other routine examination of an applicant’s financial situation.
Other complaints focus on condition of homes and questions surrounding who’s responsible for repairs.
Nehme couldn’t say whether HPA’s entrance into the local market is a positive, but says HPA represents another driver of price growth due to its deep pockets, which allow it to compete in markets with extremely low inventories.
But he doesn’t know HPA’s success rate of actually helping renters acquire properties.
The answer to that question is about 20 percent, or one in five renters, according to a person familiar with HPA and Blackstone who spoke on condition of anonymity.
The person says no portion of rent goes toward the down payment. Rather, a rental contract enables the renter to plan to buy the house by setting the price of the home in each of the years it’s under a rental contract; also, the down payment is pre-determined, not a moving target.
That way, the person says, if a home appreciates during the rental period, it’s not guesswork how much they’ll pay for the house but rather the sale price is pre-ordained each year of the contract.
Also, the person adds, if that renter chooses to walk away, he or she hasn’t lost money earmarked for a down payment.
“If the person who was living there chooses not to purchase the home and no longer wishes to live there, then that home is re-rented out to another resident,” the person says.
Some speculate that corporate buyers drive home prices higher, but the person familiar with the HPA/Blackstone situation says HPA’s presence in Colorado Springs is so small, it doesn’t own enough homes to drive the market.
“When you look at first-time homebuyers, it’s a real value to them in the way it expands access to homes in a way that no other company can do,” the person says.
It appears Blackstone will commit to keeping the rent-to-own model after acquiring HPA, because that program is what attracted the mega-company to HPA in the first place, the source says.
Why Colorado Springs? HPA entered the local market after potential renters reached out to the company expressing interest in El Paso County properties, the source says.
Because some renters may eventually acquire their rental homes, the person says, HPA renters have “a higher degree of emotional attachment to the property,” which generally makes them feel more invested in their neighborhoods.