A Look at the Institutional Investors Targeting SFR

As single-family has grown, many institutional investors have jumped into the fray. In a new report, Yardi Matrix says that institutions have allocated more than $10 billion to the sector over the last few years.

Institutions are not just scooping up existing homes, as they did in the wake of the Global Financial Crisis. This time, they’re also building new. Twelve percent of new single-family construction in 2021 are rentals, according to John Burns Real Estate Consulting.

“With so much capital looking to invest in the sector and the demand for rentals rising, we would expect build-to-rents to increase rapidly for at least the next several years,” according to Yardi Matrix.

While SFRs have received a lot of attention over the past year, Yardi reviewed 65,000-plus properties in its database and found that occupancy rates and rent growth have been robust for most of the past decade. In recent years, rents have exceeded multifamily and increased to 24.1% to $1,691 that rent growth.

Of course, over the past year, things have taken off. Through midyear 2021, SFR rents were up 6.4% nationally. Overall, rents grew 5.3% in 2020, 5.2% in 2019, and 3.7% in 2018. At midyear, occupancy rates were 94.3%. Those rent increases were strongest in secondary and tertiary markets.

SFRs are least common in the Northeast and large coastal metros, where land is harder to find. Instead, most SFR stock is concentrated in the Southwest, Midwest and Southeast. “Metros such as Phoenix that have huge expanses of available land present much more of an opportunity for single-family rental communities,” according to Yardi.

More than two-thirds of homes (8,914) being built in 50-plus unit communities are in secondary markets. The other 3,755 homes are in tertiary markets. Yardi says that no SFR communities are being constructed in gateway metros.

The Southwest (4,896) and Southeast (3,978) have the most SFR units under construction. They are followed by the Midwest (1,716) and West (1,522). Only 134 units are being built in the Northeast. Phoenix leads the way with 6,000 existing SFR communities and more than 2,500 under construction. Jacksonville (766), Charlotte (719), Houston (644) and Atlanta (544) have the most SFR communities under construction.

Columbus (4,300), the Inland Empire (2,500), Detroit (2,500) and Kansas City (2,200) have the most existing units in large communities, according to Yardi.

American Homes 4 Rent (1,603), NexMetro Communities (1,336) and Redwood Living (1,067) have the most units under construction.

The owners with the most contiguous homes in communities with 50-plus units in Yardi’s database are Redwood Living (9,806 units), Inland Real Estate Group (1,579), NexMetro Communities (1,510) and Lewis Group (1,254).

Other players continue to build scale. Earlier this week, Tricon Residential entered into a joint venture arrangement with three institutional investors to acquire single-family rental homes targeting the middle-market demographic in the US Sun Belt. The JV will have $5 billion in purchasing power including leverage and is expected to acquire more than 18,000 single-family rental homes primarily from resale channels.