Greystar, CPP Investments Partner on SFR Market

Greystar Real Estate Partners and Canada Pension Plan Investment Board (CPP Investments) are just getting started in the purpose-built single-family rental market.

The two have formed a new joint venture to develop and acquire communities in this booming segment in the US.

CPP Investments and Greystar have allocated approximately $840 million in equity to the joint venture. CPP Investments will own a 95% stake and Greystar will own the remaining 5%.

This is CPP’s first investment in the single-family rental sector alongside its existing partner, Greystar.

Investors See Rent as an Inflation ‘Hedge’

Kori Covrigaru, co-founder and CEO of PlanOmatic, tells GlobeSt.com that capital is flooding into the single-family rental space because inflation is on the rise, and investors see rent as an inflation hedge. Additionally, he said the record low interest rates that may never be available again have investors capitalizing on the opportunity.

“Companies involved in real estate management are naturally flocking toward single-family rental properties because they understand cap rates, and now that we are seeing proven cap rates in residential real estate and decade-long proof that this is an asset class that can yield generous profits and great cash flow.”

Covrigaru said the joint venture seems natural, especially for Greystar, because build-for-rent communities are as close as a multi-family manager can get to their existing infrastructure, systems, and processes.

“While it’s not as ideal as a centralized multi-unit building, it definitely checks a lot of boxes,” Covrigaru said. “As demographics continue to evolve, and of course, with the pandemic’s impact on society, we will naturally continue to see a huge demand and massive under-supply for affordable, spacious living.”

SFR Expected to Outpace Multifamily

Indeed, SFR as an asset class is expected to outpace multifamily, office, retail, storage, and hospitality growth in the next few years, Todd LaRue, Managing Director, RCLCO, tells GlobeSt.com, after proving recession proof during COVID-19. In 2020, SFR REITs outperformed other property-sector REITs by 23%; and since 2019, SFR REITs have been the highest performing property sector, he notes.

Furthermore, the market is ripe for consolidation, he continues.  Of the 16 million SFR homes in the US, ownership is highly fragmented with 89% of single-family rentals owned by small investors with one to five single-family rental homes.

“RCLCO expects continued consolidation throughout the industry, particularly in large, urban markets where barriers to entry are high, home values are high, and cap rates continue to compress,” LaRue says. 

Consumers’ Demand for SFR Climbing

The CPP-Greystar joint venture will develop and acquire professionally managed rental communities consisting of detached or semi-detached homes and townhomes with private garages and backyards. Each community will have onsite leasing and maintenance as well as other communal amenities.

The partnership will target development areas that are near employment hubs, transit and retail centers across the sunbelt, mountain west and west coast regions of the US. Greystar will operate and manage the portfolio on behalf of the joint venture.

“This new wave of purpose-built, accessible rental communities is giving new options to renters who are seeking more space in a safe and professionally managed, quality home,” Greystar CEO Bob Faith says in prepared comments. 

Tenants for SFR are, for the most part, in search of a neighborhood feeling among other characteristics when opting to rent these homes. 

NexMetro Communities, for example, has more than 7,000 homes completed, under construction or in site development in multiple markets across the country. “The appeal of [our SFR] neighborhoods is unmistakable, as more people in all walks of life are seeking a lifestyle that combines new single family home living and the freedom of a lease,” Jacque Petroulakis, EVP Investor Relations & Marketing, tells GlobeSt.com.