SFR Providers Are Increasingly Moving Toward Build-For-Rent

Providers of single-family rental homes have increasingly turned to the development of new housing over the past two years.

 Data released this week from the National Rental Home Council and John Burns Real Estate Consulting shows that build for rent homes accounted for 26% of properties added to the portfolios of single-family rental home providers in the fourth quarter, up from just 3% in Q3 2019. Meanwhile, acquisitions of existing individual homes by SFR providers decreased from 81% to 57%.

More than half of the 651 BFR communities in John Burns Real Estate Consulting’s database (51%) were built in the past five years—and more than one-quarter (27%) were built in the past two years. The company’s Danielle Nguyen has said she is “highly confident” that supply of new BFR homes will increase “dramatically’ in the near term.

The firm’s Residential Land Broker Survey also notes that BFR operators are actively snapping up land across the country, particularly in the Southeast (9% to 14% of lots)  and the Southwest (10% to 11% of lots). 

“Many of these BFR operators are competing for the same lots both public and private builders are also bidding for, particularly on higher density parcels,” according to Nguyen. “The build-for-rent share of land purchased has grown over the course of the last couple years, as a flood of capital and rising single-family rents drive demand for development sites.”

Recent analysis from RCLCO also notes a huge opportunity for institutional investors in the BFR space.  In December, for example, Greystar Real Estate Partners and Canada Pension Plan Investment Board (CPP Investments) announced a new joint venture to develop and acquire purpose-built SFR communities in the US.

“Purpose-built single-family rental is on the rise, increasing from an average of 3.5% of single-family completions in the 2000s, to 5.1% in the 2010s,” the firm said in a presentation on the broader SFR market. “If purpose-built SFR continues trending up [over the next decade], approximately 700,000 new SFR units could be delivered in the same period. If foreclosure rates remain at their five-year average, own-to-rent conversions could add 728,000 SFR units in the next decade, but if COVID causes foreclosure rates to spike, this figure could be much higher (a 1% average foreclosure rate would equate to 1.3 million SFR additions). This still leaves unmet demand for an additional 500,000 to 1.1 million units of new SFR product over the next decade.”

According to  Sudha Reddy of Haven Realty Capital, there’s still plenty of room for competition in the sector.

“There has been a sizable amount of capital raised and announced for BTR. But we do not believe that capital has flooded the market. There are still fewer competent BTR operators in the market than there is capital,” Reddy, CEO of Haven Realty Capital, told GlobeSt.com in an earlier interview. “The housing market is large and fragmented so there is plenty of room for competition.”