NEWPORT BEACH, CA—The single-family rental sector, a newly institutionalized property type, is less well known and more fragmented than other sectors. The vast majority of single-family rentals are owned by small investors and mom-and-pop operators, while the publicly traded REITs only own ~1% of all single-family rental homes in the U.S.

With a history of less than five years in the public-market, many mutual fund and hedge fund managers are still trying to understand the space. The initial public-market track record for the REITs was poor from mid-2013 through early 2016, when they began to dramatically improve operations. Big operators are proving they can control costs, improve margins and grow rents. The near-term operating outlook is favorable in absolute terms and relative to many other property types.

Improvements in expense and revenue management represent one of the biggest tailwinds for the sector. Ten years ago, the business would have been nearly impossible to operate without the technological tools used to support scaled operations in areas such as leasing and maintenance. The large public REITs and some smaller private operators (e.g., Progress Residential, Tricon American Homes) have made substantial investments in their platforms and management teams. These platform improvements have alleviated prior concerns from investors that management teams can successfully run this operationally-intensive business.