Driving down Campbell Street in West Oakland, Neill Sullivan points out a series of homes and apartment buildings he’s purchased since the real estate market collapsed.
In 2008, the 38-year-old founded a company to buy foreclosed Oakland real estate. According to a report released Thursday by the nonprofit Urban Strategies Council, Sullivan’s firms have purchased 171 homes in the city – almost all in West Oakland. Those homes accounted for the second-highest number of foreclosures purchased by investors.
“We focused over here, because at one point many of these houses were boarded up and people weren’t buying,” said Sullivan, who lives in a duplex in San Francisco’s Mission District.
“There was opportunity,” he said.
Sullivan is hardly alone in buying foreclosed homes en masse. According to the Urban Strategies Council’s report, real estate investors have purchased – usually with cash – 42 percent of the 10,508 homes in Oakland that went into foreclosure between January 2007 and October 2011.
Many of these investors are turning the homes into rental properties and charging rent that is significantly higher than the monthly mortgage payments many families would have to make if they purchased the homes.
“They are massive landlords in neighborhoods that historically have had high rates of homeownership, and very few people are aware of the investor activity that’s taking place under their feet,” said Steve King, the organization’s housing and economic development coordinator.
Investor’s 307 buys
Community Fund LLC bought 307 foreclosed homes and apartment buildings, the most purchased by any investor, according to the report. The company is registered to Michael Marr, an Oakland real estate broker who declined to comment for this story. Community Fund paid, on average, $111,000 for a foreclosed home.
Property records show many of the properties purchased by Community Fund and Sullivan’s firms are detached single-family homes that were owner-occupied before foreclosure.
Sullivan’s firms paid an average of $139,000 for a foreclosed home. As of October, those companies had sold 10 of the foreclosed homes they bought, the report said, retaining the balance, primarily as rentals.
“We’ve been a sleeping giant for a while,” said Jeremiah Brennen, a leasing agent with Sullivan Management.
Brennen said he is seeking tenants who would normally prefer San Francisco’s trendier neighborhoods, but who can afford to rent only a small apartment in the city. “We want to bring in good, productive people and really change the area,” he said.
Change not for better?
But not everyone is welcoming that change.
“It has caused a drastic increase in gentrification,” said Marilyn Reynolds, 58, who teaches at a Head Start program in the area. “The neighborhood is changing from black and Hispanic to white. People are being pushed out.”
Sullivan rejects the charge.
“We are not trying to change the fabric of Oakland,” he said. “We value the diversity in Oakland. We are simply trying to rent houses to qualified tenants.”
But some Oakland officials say the focus on rentals is itself cause for concern.
“We have investors who are eating up our neighborhoods for their profits,” said Desley Brooks, an Oakland city councilwoman.
Brooks argued that families that would want to buy the foreclosed properties with conventional financing are being squeezed out by investors who can afford to pay cash. Real estate investors are “taking away the notion of buying into the American dream,” she said.
Cash over loans
In neighborhoods hit hard by the housing crisis, it would be cheaper for many families to buy a foreclosed home than rent an apartment. The average price of a house in those neighborhoods is less than $150,000. Monthly payments on most 30-year mortgages at that price are usually less than $1,000, while rents on many West Oakland properties are around $2,000.
But banks have been reluctant to sell to buyers who purchase with loans, preferring the ease and speed of a cash transaction.
In its report, the Urban Strategies Council, which focuses on development issues in low-income urban areas, argues that banks and government-controlled financial institutions Fannie Mae and Freddie Mac could be doing more to help families buy foreclosed homes.
Among its recommendations: Expand programs that give owner-occupiers and nonprofits a “first look” at foreclosed homes before they go up for auction.
“It is essential that the opportunity to become a homeowner is not inequitably limited to middle- and upper-income families,” according to the report.
Many need repairs
Real estate professionals counter that the large number of foreclosed homes purchased by investors are a temporary phenomenon, a sign that the real estate market has begun to rebound.
“It starts with investors’ rentals; that’s the first step,” said Paul Zeger, CEO of Pacific Marketing Associates, which markets residential properties on behalf of Bay Area developers. “As rents begin to rise, individuals and families start to see that buying a home makes economic sense.”
For his part, Sullivan said that the poor physical condition of most of the homes he buys would prevent families who need conventional bank financing from qualifying for a loan.
He pointed at a dilapidated duplex on 37th Street that he purchased this month for $234,000. Work crews were already inside.
“A property would not qualify for a financed buyer because the property needed all new electrical, plumbing, a new roof and a full cosmetic makeover,” Sullivan said. “Due to that, only an all-cash buyer who could put the money into rehabbing it could buy it.”
