Spanish Inquisition

CLICK Francisco Goya 1799 from Los Caprichos

Trick or Treat

I have reported in the past (July 24, 2013) on big money buying up swaths of bank owned U.S. residential properties in the last 2 years for buy, hold and flip when capital gains return despite current negative yields. Today Bloomberg is reporting that:

"Blackstone Group LP (BX), builder of the biggest single-family rental home business in the U.S. is using its experience to replicate the model in Spain where property prices have dropped 40 percent."

A few quotes from the Bloomberg article follow: 

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The world’s largest private-equity firm, which has spent $7.5 billion buying 40,000 homes in the U.S., agreed in July to purchase 18 apartment blocks from the city of Madrid for 125.5 million euros ($173 million). The firm is bidding against investors including Goldman Sachs Group Inc. for another 1,458 housing units being sold by Madrid’s regional government, according to three people with knowledge of the auction, who asked not to be identified because the information is private.

While Spain traditionally has a lower percentage of renters than the U.S., the (Spanish) government last year introduced measures to increase demand in the rental market by abolishing tax breaks for individual home buyers, passing legislation to protect landlords by speeding up evictions of tenants who don’t pay, allowing owners to raise rents above the annual inflation rate and reducing the duration of leases.

Three years of austerity, unemployment at 26 percent and a drought in mortgage lending are forcing more Spaniards to rent (rather than own) and (banks) to attract foreign funds to invest in the country’s unsold homes, which may total 1.5 million units according to some estimates.

Blackstone (in the U.S.) is now attempting to sell debt backed by the rental payments, the first securitization of its type, with Deutsche Bank AG (DBK) holding a meeting today in New York to market $479.1 million of the securities backed by mortgages on 3,207 properties. Blackstone’s long-term wager is that the homes’ values will rise, positioning the firm to exit at a profit.

Oh, did I mention that the wire services have reported that Spain is officially "out of recession" according to the Madrid-based Bank of Spain: "Gross domestic product expanded 0.1 percent in the third quarter, growing for the first time in more than two years." 

Happy Halloween, here's some Wikipedia reading:

• The Spanish Inquisition (1478-1834)
  
• Goya's image above is from Los Caprichos (1799)

...and here is Richard Wilkinson's Ted Talk (2011): How economic inequality harms societies. The hard data on economic inequality shows what gets worse when rich and poor are too far apart; real effects on health, lifespan, even such basic values as trust. "If Americans want to live the American dream, they should go to Denmark".