Capital Is Pivoting from Multifamily Into the BTR Space
The increased demand for single-family rental product is pulling players from the apartment market into the build-to-rent arena.
Build-to-rent communities are quickly becoming the most sought-after new asset class. According to Noam Franklin, a founder of Berkadia’s JV Equity & Structured Capital group, investment capital is pivoting from multifamily to build-to-rent investments in response to surging demand.
“Capital sources such as private equity funds have recognized the increased demand for rental product across the country and are pivoting dollars away from other asset classes in real estate and doubling down on the residential space,” Franklin tells GlobeSt.com. “While traditional multifamily remains attractive to these investors, our team has noticed a significant increase in interest in purpose-built build-to-rent single-family product since early 2020.”
A recent deal with Capstone Communities is among the most recent examples. Franklin, along with Chinmay Bhatt and Cody Kirkpatrick, secured a programmatic capital partner for Capstone Communities’ BTR pipeline. The team sourced $37 million of equity for the first two projects in Port St. Lucie and Myrtle Beach. The deal is one of many that the team has worked on in the last year. “To give you a sense of that demand, our team has capitalized over $500 million of opportunities within the BTR space – most of it programmatic in nature—over the past 12 months. We also have a robust pipeline of deals slated to close in the next quarter,” says Franklin.
Capital is responding to the sudden increase of demand for BTR product, a trend that has been bubbling for years but was accelerated by the pandemic. “The surge of interest in BTR is the result of a convergence of demand drivers. COVID-19, of course, had a profound impact in terms of fostering people’s desire for more space and creating the possibility of being able to work from anywhere,” says Franklin, adding that the residential rental sector has myriad benefits. “Other factors include the fact that BTR product appeals to families who want a single-family home type experience with on-site amenities; pet parents who want private outdoor space for their pets; and empty nesters seeking the conveniences of greater mobility and no down payment,” he says.
Franklin is also seeing the move to BTR investment all over. Franklin explains, “Even among our own friends and peers, we’ve seen an increase in the “renter by choice” tenant who wants all the benefits associated with single-family home living without the responsibilities.”