Single-Family Rentals Draw Apartment, Other Developers

With single-family rentals outperforming multifamily in many cases, builders in other sectors are starting to take notice.

”The buzzword right now is build-for-rent,” says Michael Carey, senior director at Altus Group. “Companies are building out whole communities of build-for-rent [housing]. You’re seeing a lot of money pouring into that space.”

Ken Valach, CEO of Trammell Crow Residential, says his company has bought a site to build single-family rentals. “We’ve actually bought a site, but we haven’t started it yet,” Valach says.

Carey is taking note of apartment builders coming into the SFR space—something that wouldn’t have happened a decade ago. “We’re seeing a few apartment builders dip their toes in the market,” Carey says. “That makes sense with the shift from multifamily to single-family [during the pandemic].”

In the past, moving to the SFR space might not have made sense to organizations with professional management platforms.

“The technology wasn’t there,” Carey says. “They didn’t have the management systems down. It was too unwieldy to manage, but that’s not the case anymore.”

Many institutional investors are also partnering up with home builders to produce these single-family rental communities. Last month, as one example, Bloomberg reported that Lennar Corp. was seeking to raise $2 billion to develop thousands of single-family rental homes, citing unnamed sources.

“The home builders look at this as, ‘Hey, I have security here,’” Carey says. “They can sell all of the homes at one time, not one at a time. It takes that risk out of the timeframe as well. It compresses it for them.”

Sometimes, builders are also working on sites that don’t necessarily work for for-sale homes. These sites may be further out of a large metro where it is easier to buy land.

“It [rental underwriting] works in a lot of markets where land is cheap,” Carey says. “You keep hearing about a market like Phoenix. It is cheap there. In Jacksonville, Charlotte and some of these other prime markets, the land is still relatively cheap.”

In higher-priced markets, it’s harder to find land that works for single-family rentals.

“They’re not going to do this [buy land for rentals] in higher-priced markets,” Carey says. “What you’re seeing is that when you do scattered purchases, you can select your site relatively easily. So you can buy one at a time. You can get in that zip code and that school district that you want.”

In some cases, people are building rent detached homes in these closer-in suburbs. “Then you also see new construction of scattered homes,” Carey says. “So it’s really evolving.”

Valach says there are questions about the level of amenities to include in these SFR communities. While some developers would blow it out with apartment-style amenities, he thinks the basics, like a community pool and green space, might be enough.

“People aren’t looking for the fitness center,” Valach says. “They’re going to have their Peloton in their house.”

Renovations aren’t dead either. Even if single-family rental companies aren’t building new, some are refurbishing the homes they buy. Even if the home isn’t new, it feels new.

“They fix these homes up, and they maintain them very well,” Carey says. “There used to be this negative connotation with an SFR. We’re not seeing that anymore.”