Atlas Real Estate and DivcoWest Form $1B JV To Enter SFR Market

Atlas Real Estate and DivcoWest have formed a $1 billion joint venture to acquire, renovate and manage single-family rental homes throughout the American West, signaling the latest entry into the skyrocketing SFR market and marking DivcoWest’s official entrance into the sector. 

As part of the deal, San Francisco-based DivcoWest will invest $250 million of equity. The joint venture expects to deploy a total of $1 billion acquiring and renovating homes in high-growth states like Colorado, Arizona, Idaho, Nevada and Utah, where Atlas currently manages more than 4,200 units.

The SFR market—traditionally the purview of smaller investors—has emerged as a stable, relatively safe investment vehicle in the COVID era, and growth in the sector is expected to eclipse multifamily, office, retail, storage, and hospitality growth by 2022, according to Walker & Dunlop data. The firm estimates the SFR market to be valued at around $3.4 trillion. 

Institutional investors are flooding the space, with homebuilder Lennar launching a $4 billion SFR platform with lead investor Centerbridge in March, and JP Morgan Asset Management pledging $625 million in equity to American Homes 4 Rent to develop approximately 2,500 homes in high growth markets across the West and Southeast last year.

SFR rent growths are continuing to climb as well, though rising home prices have compressed rates somewhat. The average annual gross rental yield among the 495 counties analyzed by ATTOM Data Solutions in a recent report is 7.7% for 2021, down from an average of 8.4% in 2020. And within that subsector, yield declined in 87% of counties year-over-year.

But investors should take heart, Maksim Stavinsky, co-founder of Roc360, a FinTech platform that is parent to Roc Capital and Haus Lending, said in an earlier interview.

“Offsetting the declining yields are improved financing terms for such rental properties and portfolios,” Stavinsky said. “Across our platform, rates that we are quoting to borrowers have more than offset the waning cap rates on a year-over-year basis, with the highest-tier rental loan borrowers seeing terms in the low 4% range. This is happening despite a yield curve that has been steepening of late.”