I was listening to IMN's REPE conference today and heard several people (who I would NEVER expect to be doing single-family deals or build-to-rent deals) all talking about how strong the asset class is looking and how they are looking for these types of deals.
Is this market completely driven by the institutions? How are REPE firms finding and buying these deals?
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No, institutions are still "minor" players in the single family rental game, still mostly mom & pop landlords who just own/manage property close to where they live.
But, yeah, SFH rentals has been an up and coming "asset class" since Blackstone quickly followed by Starwood started buying up houses around 2011 or so. Many followed suit (I mean, the asset got the BX bump, and a lot of follow-on people followed suit). I'm sure the pandemic will accelerate the deals they want to do. How do they find them, they hire realtors and acquisition teams and just go after houses by bidding at foreclosure auctions and via deals in Realtors MLS systems. (I actually sold a rental house I owned personally to Starwood, they paid a great price and picked up a lot of my sellers closing cost, was a great transaction)
I mean Blackstone exited the field by IPO'ing Invitation Homes in 2019, then got back into it this year through a minority stake in a similar business. I suspect build-to-rent communities will be a bigger trend this decade. The demographics driving this investment thesis are hard to ignore, but it is far from a new idea (about a decade old now).
This is entirely incorrect. Everyone and their mother in the institutional world want single family rental. Not only this but you see the massive home builders allocating large portions of their communities to rental where the institutions are coming in to buy.
How is this incorrect? That is near exactly what I said lol. The OP framed it as a "new" trend, I am pointing out it is an old trend, but likely to get reaccelerated in 2021 due to COVID.
Another important thing to note, the institutions are no longer buying one off homes, they buy/build with a partner whole communities. The one-offs worked during the GFC because there were thousands and thousands of foreclosed homes, that is not the case now. Also managing a community versus one-off homes is a hell of a lot easier and an institution can wrap their head around this concept better.
This isn’t totally accurate. I’ve worked in acquisitions for two different SFR institutional landlords (1 of them being top 4 in the country) and they primarily buy one-offs from the MLS or from iBuyers. Portfolios make up some transactions, but I personally bought 700+ homes in 2019 off the MLS. 2020 has been lower volume because of COVID. But I would say the majority of homes being added to institutional investors portfolios are coming from one-off transactions.
I am putting together one of these deals right now, and I can tell you that the LP (state pension fund) is completely committed to charging forward no matter how soft the underwriting is. They are really anxious to get some exposure to this asset, and are using this deal as a test case even though the underlying fundamentals are really not that attractive.
the demand on these deals seems to be insane. we have not personally done much in this space but given the investor appetite, i think we might have to play ball.
what do you mean by underwriting being soft?
Weak returns given the risk profile and the quality of the market
We're involved in the build to rent space. Seen a couple large portfolios trade with large numbers of bids from institutional type players.
I've always wondered when this thought-process would resonate with investors.
Our firm used to always pass on SFR opportunities but I may have to speak with our CIO...
Always wonder how can an SFR rental portfolio pencil...I can see it as an asset class but wonder how it can attractive institutional players.
Working in this space now and have four deals under contract, IMO SFR is the next student housing type bubble in real estate that has already exploded and will continue to grow exponentially in the next two years. Strong fundamentals (poor aging millenials accustomed to renting who are growing families and do not have the savings to buy); tons of new capital in the space continuing to compress cap rates to a point where they are almost level with multifamily cap rates. It has been notably easy to raise capital around this platform and investors are indeed willing to accept lower returns to capture market share in the space. Feels like a rat race right now to buy and manage as much as possible before new groups that have vertically integrated development/construction start to build out supply to levels that tilt returns and cap rates back towards less intriguing figures.
Can anyone speak to who the major players are in providing LP equity to SFR development deals at the moment? Selfish question as I have a client that has asked me about this.
Bump
How do these deals work? Do you buy up existing platforms of single family homes in these deals, or are you creating a platform to buy up single homes and then rent them out while you double as the operator?
Can second this thread. I’m at an institution type MF and we are underwriting SFR (also called build to rent) assets monthly. It’s a really attractive and growing subsector, especially in the sunbelt region. This space has also been exacerbated by covid.
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