Private REIT Converting Single Family Homes

American Residential Properties Inc. has been able to capitalize on the housing market crash by investing in rental single family homes and providing short-term private residential mortgage financing, according to company executives, Stephen Schmitz, CEO, and Laurie Hawkes, president.

The private REIT was formed three-and-a-half years ago after the real estate downturn when Schmitz said there was a "huge diminution" in property values in residential real estate.

"We also saw greater availability of product coming through foreclosures or short sales. But, more importantly, what we saw was the new American tenant, those people that went through foreclosures and short sales," he said in a video interview alongside Hawkes with REIT.com in New York at REITWeek 2012: NAREIT's Investor Forum. "It's that tenant that really led us to start our company."

The company primarily invests in properties in the southwestern United States, including Phoenix, California and Nevada. However, Hawkes said the company is also looking to expand in Atlanta and Florida. She added that the southwest region was selected because it's the area that had the greatest appreciation during the housing market's peak in 2006.

"And, consequently, it had the greatest fall after the housing bubble burst in the last four or five years," she said. "The country probably lost $5.5 trillion worth of equity value, and a large part of that was in those regions."

Schmitz added that those markets that had a deep overcorrection will make a turn-around in favor of investors. Hawkes estimated that American Residential can purchase properties in the hardest-hit areas at approximately 45 cents on the dollar of their value at the market peak.

Both Schmitz and Hawkes said that they have been pleased with the market response so far, despite admitting there were "non-believers" when they first pursued the business.

"This space is getting a lot of attention, and there are a lot of people coming into the space," Schmitz said. "This is a very operationally intensive business, and because of the system processes and procedures that we've built over the last three-and-a-half years, this gives us a good leg up."