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» VISIT US ONLINE @ DSNEWS.COM 23 THE 2015 FIVE STAR CONFERENCE AND EXPO: ACADEMIC RECAP THE SINGLE-FAMILY RENTAL LAB: Experts Believe Single-Family Rental Market is Here to Stay While flipping was a popular investor strategy in the years immediately after the crisis, more and more investors are seeking to buy properties and employ a rent-to-hold strategy. Has the increased popularity of the single- family rental market forever changed the way housing reacts to market swings, or is this an unsustainable trend that will eventually precipitate another housing crisis? Panels of experts discussed this and other issues such as securitization, crowdfunding, property management, and protecting investments from HOA "super-priority liens" in the Single-Family Rental Lab. While this is the 12th year for the Five Star Conference, it was the first-ever SFR Lab, speaking to the rapidly growing popularity of the SFR market in the last year to two years. When the panel of four experts debated whether the current single-family rental market is a "bubble" or is here to stay and the question was put to them by Tim Herriage, the lab's director, three of the four experts answered that it was here to stay. at is, three out of four experts believe that investors will be able to sustain the single-family rental market enough to avoid a housing crisis like the one in 2008. "I think when you listen to everyone else, from the Moody's people to the property managers to acquisitions people all the way through, I think the message is that this is an industry that is here to stay," said Herriage, CEO of 2020 REI Companies. "It's a growing industry with billions in transactions on an annual basis." ose who thought that the single-family rental market is here to stay agreed that the strength of the millennial graphic and their spending power as they get better paying jobs and look to move out of their parents' houses will be a major factor in the growth of the single- family rental market. Currently about 29 percent of the nation's rental stock consists of single- family detached homes. Aside from millennials, there have been several factors playing into the recent growth of the single-family rental market, according to Herriage. THE REO LAB: How is the Industry Coping with the Rapidly Declining REO Inventory? Nationwide REO inventory is approximately one-third of what it was at its peak in early 2009 at the depth of the housing crisis. What will it mean for banks when the steadily declining REO inventory falls down to its "normal" pre- crisis level in less than two years, as is expected? What type of shifts or diversification is the mortgage industry experiencing right now as REO inventory continues to spiral downward? At the REO Lab at the 2015 Five Star Conference and Expo industry experts discussed how to get ahead and stay informed and equipped to take on the new REO marketplace. e first panel of the lab, "True State of REO: Market Analysis and Shadow Inventory," included Roger Beane, President and CEO of LRES Corporation; Sharon Bartlett, Director of Vendor Services at Freddie Mac; and Clay Lehman, Principal, Resolute Asset Management. Beane said the future of REO, and of housing in general, could be determined largely by who wins the next presidential election." "Every four years you have that presidential election and you wonder how policy may change," Beane said. "But certainly housing is an extremely important policy decision for any administration that comes through. How important housing is to them is going to be a reflection of how the industry from a regulation standpoint or a deregulation standpoint. All of these different policies will take effect. It's a natural progression with any administration change, and we'll know the effect within 2 to 3 years. It really depends on the policy and what these banks and owners of loans continue to do with their properties." Joyce Essex, an agent with Coldwell Banker Real Estate, said one key to surviving when the REO volume is dwindling is focusing on an area or two of specialty. Essex was a panelist in the REO lab for the "Diversification and Adjusting for the Inventory" discussion. "Whether it's REO or traditional sales, performing, probates, bankruptcies, investors, whatever it is, know that market, so when the market shifts, you have the knowledge, you know who your clients are, you know who the competition is, you know the laws, the rules, and you know the marketing and the technology," she said. "Make sure that you specialize and really know what you're working on at the time and hopefully have a couple of different spaces where you can add value to the client." In the case of Auction.com, EVP Rick Sharga, a panelist in the lab for the "Understanding Auctions" discussion, said his company has already begun the shift from distressed properties to non-distressed. "When I joined Auction.com two years ago, I didn't join the company to be there to watch the last foreclosure property fall off the auction manufacturing line. I knew then, because I've been following foreclosures for 13 years now, that we were looking at what was going to be diminishing pool of properties," Sharga said. "So the notion was always to provide an online marketplace that provided a more efficient, more transparent, more flexible, faster way for people to buy and sell properties. We started on the distressed side because we were dealing with institutional sellers who were more sophisticated and less emotionally attached to a property. at's given us the opportunity to build out the process and build our technology to where we're ready to enter the consumer market. But the plan all along has been to be able to shift, as the distressed market gets smaller, into the broader, non-distressed residential retail market." Diversifying to adjust for the declining inventory includes expanding product offerings, according to Beane. "In addition to selling REO properties as an asset manager, we have a valuations division, we have an HOA division, we have our own technology for valuations, and we do multiple products in multiple arenas," Beane said. "We do origination evaluations and we do default evaluations. We're protecting ourselves in a cyclical/countercyclical economy, and based on the trends, we're able to cross-train our associates and grow our business through diversified product offerings in this industry. Protecting yourself by diversifying the approaching to the marketplace with different types of products is vastly important. It's the reason for survival."

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