BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2282


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          Date of Hearing:  May 18, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          AB  
          2282 (Calderon) - As Amended April 25, 2016


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          |Policy       |Housing and Community          |Vote:|4 - 2        |
          |Committee:   |Development                    |     |             |
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          |             |Banking and Finance            |     |7 - 4        |
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          Urgency:  No  State Mandated Local Program:  NoReimbursable:  No


          SUMMARY:  This bill restricts the activities, and requires  
          registration of large-scale buy-to-rent investors, as defined.   
          Specifically, this bill:  


          1)Requires the Department of Business Oversight (DBO) in  
            conjunction with assistance that may be offered by county  
            recorders to design and implement a registration program for  
            the purpose of registering and monitoring large-scale  
            buy-to-rent investors.  









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          2)Prohibits a large-scale buy-to-rent investor from placing a  
            bid on a normal sale of a single-family home for a period of  
            not less than 15 days.


          3)Requires DBO to consider methods to require buy-to-rent  
            investors to renew registration of their rental property on an  
            annual basis, including new and current single-family home  
            rentals that they own or in which they have invested.


          4)Mandates that DBO, on or before January 1, 2018 submit to the  
            Governor and the Legislature a report that includes the  
            following:


             a)   Information regarding how many large-scale buy-to-rent  
               investors own property in the state for the purpose of  
               renting the property and which regions of the state their  
               investment activity is occurring;


             b)   The number of single-family homes each large-scale  
               buy-to-rent investor owns and an analysis of the potential  
               impacts their investments are having on the local real  
               estate market, including the price of homes, the ability of  
               individual home buyers, specifically those who need  
               financing, to compete against the large-scale buy-to-rent  
               investors, the length of time large-scale buy-to-rent  
               investors are holding their property as a rental; and, how  
               many homes large-scale buy-to-rent investors are selling  
               each year.


          FISCAL EFFECT:


          1)Total costs to DBO of $3.9 million (special fund/GF) in the  








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            first year to design and implement a registration program and  
            to prepare and submit the required report.


          2)Ongoing costs to DBO of $798,000 (special fund/GF) to maintain  
            and monitor the registration program and other activities of  
            large-scale buy-to-rent investors in California. 


          





          COMMENTS:


          1)Purpose.  According to the author, "over the last few years,  
            institutional investors, such as Blackstone, have bought up  
            billions of dollars-worth of single-family homes.  Instead  of  
             renovating  and  reselling  them  or just waiting for the  
            real estate market to recover, they have converted  these  
            properties  into permanent  rental  homes.  Of the five   
            largest  metropolitan  areas  in the  U S   where  
            concentration of this type of investment  is highest,  three   
            of  them reside  in California:  Los Angeles,   Riverside,    
            and Sacramento.  At the time, the vast majority of these  
            purchases were foreclosures or short sales; however, purchases  
            of homes coming from natural sales have recently increased.   
            The CEO   of Colony American Homes, which is one of the  
            largest single-family landlords in the country, said it  
            himself "the first phase was distressed homes, the second  
            phase is acquiring homes in a more regular way. By having this  
            new type of investor in the single-family home market,  
            families must now not only compete against their more  
            financially secure community members, but multiple, large  
            hedge fund companies who have millions of dollars of cash on  
            hand to outbid them."








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          2)Background. In the aftermath of the financial crisis and Great  
            Recession, the supply of vacant homes far exceeded the demand  
            for owner-occupied homes. This severe imbalance created a  
            unique opportunity for a small number of well-funded investors  
            to purchase large numbers of single-family homes. In October  
            2013, an institutional investor created the first  
            triple-A-rated, mortgage backed security supported by revenue  
            from single-family rental properties. The emergence of a new  
            form of mortgage-backed securities tied to single-family  
            rentals is certain to have an impact on the housing market,  
            communities, and tenants. 



            Some analysts predict the funding of single-family rental  
            acquisitions through securitization will likely become a  
            dominant model quickly, and thus, continue to shrink the  
            already short supply of homes. One institutional investor,  
            Blackstone, has already become the largest single-family home  
            owner in the country. According to Department of Finance,  
            California has a little over nine million single family homes.  
             The estimated portfolio of homes turned to rentals owned by  
            Invitation Homes, a subsidiary of Blackstone is around  
            10,000-12,000 in in California.  





            When rent-backed securities premiered on the market in October  
            2013, the $479 million offering from the private equity giant  
            Blackstone Group generated more demand from investors than the  
            private equity firm could accommodate. Since then, Blackstone  
            and several other firms specializing in the rental of  
            single-family homes have sold more than $3 billion of these  
            bonds. This type of securitization has been hailed as an  








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            exciting new asset class, with financial analysts at Keefe,  
            Bruyette & Woods estimating that it could swell into a nearly  
            $1 trillion industry over the next six years.  





          3)Arguments in Opposition. The Blackstone Group, writes in  
            opposition, " We do not believe the proposed delay of a newly  
            defined class of homebuyers from entering into legal home  
            sales contracts in favor of other classes of buyers will be an  
            effective tool to increase the rates of owner-occupied homes.  
            In today's housing market, multiple types of cash buyers are  
            operating in the marketplace and temporarily sidelining one  
            class of buyer will not necessarily reduce cash home purchase  
            offers. It is also unclear the 15-day delay is consistent with  
            the protections contained in the United States Constitution."
          Analysis Prepared by:Jennifer Swenson / APPR. / (916)  
          319-2081