Last year real estate investment firm Colony Capital looked at the battered U.S. housing market and saw a big opportunity. Prices had plunged more than 30 percent in some regions between 2006 and 2011, helping erase $7 trillion in value nationwide. Banks and government-sponsored agencies sought to unload millions of repossessed homes, and as many as 8 million former homeowners needed houses to rent.

So the Santa Monica, California–based firm launched Colony American Homes, a private real estate investment trust that could soon become one of the first public REITs dedicated to single-family homes. Colony has plenty of experience: To date, it’s invested $48 billion in some 16,000 properties across the globe.

Under acting CEO Justin Chang, Colony American Homes settled on a strategy: Scour trustee sales for bargains, seeking geographic diversity to spread risk, and buy homes in markets that suffered steep price declines but will see long-term job and population growth. So far, the Colony REIT has mostly favored Sun Belt cities such as Atlanta, Las Vegas and Phoenix. As of late August it had snagged 3,000 properties and closed $525 million in institutional commitments in advance of a planned initial public offering next year. By then the REIT should have deployed at least $1.5 billion for 15,000 to 20,000 homes in a dozen states, Chang says. ....

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