The booming single-family build to rent market, if not already, will soon be dealing with headwinds around labor and supply chain management challenges, efforts to streamline operations and using consumer data points to deliver educated scaling.
Another impact could come from companies’ evolving work-from-home policies and how hybrid office hours affect workers’ behaviors and their preferred locations and housing choices.
Yet BTR homes is a CRE segment that is rapidly expanding with a formidable array of marketplace advantages. The mix of renters in the US is increasingly older and more affluent, for example, while the obstacles to transitioning into homeownership persist, according to a recent report from Northmarq.
Northmarq reported that the median price of an existing single-family home rose nearly 23% year over year through the second quarter of 2021, topping $350,000. The intensifying affordability challenges are likely to keep a greater number of existing renters in the rental pool for longer periods of time, even as the economy gains momentum.
“The demand from renters is just one aspect fueling development of SF BTR communities,” the report said. “Another is the increasing number of sales of the communities that has taken place over the past several quarters.”
The report noted that transaction volumes in 2020 outpaced combined totals from 2018 and 2019, and predicted that sales of SF BTR communities in 2021 will likely double 2020 levels. Another plus: “As more developers execute successful exit strategies on particular SF BTR communities, the market as a whole is becoming increasingly familiar with the product, its demand drivers, and returns.”
Renter Profiles and Pricing Dynamics Emerge
Indeed, Blaze Capital Partners Co-Founder and Managing Partner, Chris Riley describes the build-for-rent phenomenon as still being early days with plenty of run room. “Now that the industry is beginning to get real data points in terms of renter profiles, consumer preferences, and pricing dynamics, the industry is moving from more theoretical experimentation to educated scaling,” Riley says.
“Those data points demonstrate that this isn’t a flash-in-the-pan and that this segment should constitute a meaningful component of the rental housing space.”
Headwinds Emerge Too
But there are clearly headwinds facing BTR, Kori Covrigaru, co-founder and CEO of Denver-based PlanOmatic, tells GlobeSt,
“I see the single-family build-to-rent market continuing to grow in the near future, but I think the speed in which developers are able to build may be significantly impacted and slowed down by the current supply chain and labor shortage. I’m concerned about the supply chain shortage and labor shortage to get these BFR new construction projects off the ground, into the market and leased up by the industry,” Covrigaru says.
He points to delays in BFR product for these reasons. “I think BFR is a great product as long as the prices to build, and the raw and entitled land prices continue to make sense.”
Covrigaru is also watching very carefully what’s happening in the workforce “because hybrid versus remote work is a big question mark right now. We saw the pendulum swing pretty dramatically throughout the pandemic where people were remote and could work and live anywhere which helped fuel the SFR and BFR market.
“But today, there are some big companies asking employees to be hybrid and be in the office a couple days a week. If more companies ask employees to be in the office, this may impact BFR communities in certain locations. I think it’s important for investors and developers to watch the job market closely and the trends around remote, hybrid, and in-person working environments on a regional level because these will dictate what will happen to a lot of BTR communities across the country.”
Institutional Capital is Growing
One sign of the sector’s growing maturity is the level of institutional capital that it is attracting, Shri Ganeshram, CEO and co-founder of Awning, tells GlobeSt. “In the early days of institutional SFR, there were plenty of small operators who had amassed 50, 100, or larger home portfolios that institutions could buy at once. The appeal of these portfolios was that you didn’t need to have as streamlined of an operation as you have to buy single homes in the space, meaning you could run an SFR fund’s acquisitions arm similar to the way you run a multifamily fund’s acquisitions arms, analyzing single large deals rather than several tiny deals.
“The availability of these sorts of portfolios has waned over the last several years as the largest institutional investors have grown by buying and holding onto these portfolios.”
Lenders are also becoming increasingly familiar with the SF BTR business model, the Northmarq report said, “which is freeing up additional capital for development of new units and acquisition of existing communities.”