Built-to-Rent Tips for Master Plan Communities

The build-to-rent market has been outperforming multifamily for the last five years. Not surprising given that John Burns Real Estate Consulting’s database shows that more than half of the BTR (or, as the firm calls it, BFR) projects were built in that timeframe.

Established players are expanding both their BTR and SFR efforts. Markets that are seeing the fastest development rates are largely in the Sun Belt and West.

In one view, the easy early days have come and likely gone. Now competition in the sector means getting smarter about development—which is really about developing planning communities, not single building projects.

John Burns recently hosted a virtual BFR conference and distilled some of the best advice from those who have been successful in that market.

BTR is a way to diversify a portfolio and isn’t a replacement for other forms of master plan communities (MPCs). Those in the MPC space can find a balance, where different project types are best suited for specific circumstances and environments, allowing better overall business optimization. The same is true for investors. Adding BTR expands portfolio diversity.

One problem for BTR is the availability of sufficient land, given competition from multifamily, traditional home builders, and SFR. The experts on the panel agreed that lot size is a bigger issue for buyers than renters. Developers can provide greater density in BTR and gain better return on land acquisition spending without a detrimental effect on marketing and sales. In a time of high inflation and rapidly rising financing rates, smart decisions on capital allocation can be what makes a project, and the eventual profit, possible.

Better to keep extra land for amenities, such as on-site maintenance, pools, walking trails, rec centers, dog parks, and more. Such additions make the community more valuable to residents and allow for higher rents.

Developers should remember that many tenants of BTR projects eventually move on to purchase houses of their own. The proper mix of projects can help provide future revenue opportunities with anticipatory planning.

While current economic conditions provide challenges on one front, they also help fuel the market for BTR. Home purchases face many challenges. Those looking to become owners see historically high prices, accompanying large down payment requirements, and mortgage rates—and, thus, monthly payments—that had been out of the memory of most. Millennials are in the stage of family formation and need more space than a typical apartment but can’t afford to own. That increases the audience and the speed at which a developer can stabilize a project.