Despite Headwinds, SFRs Has Strong Demand On Its Side

LOS ANGELES—The Single-Family Rental market has seen record investment in the past few years with many, including big builders and investment funds, all vying for a piece of the pie. But with the sector now ripe for a reckoning, what’s to come/? A panel at the recent GlobeSt. Multifamily national conference tackled that question and covered topics including finance availability, renter demand, supply chain issues and leasing trends. 

Moderated by Scott Thompson, vice president and global events director at GlobeSt.com, panelists included Sean Lurry, vice president of Arbor Realty Trust and Spencer Rinker, co-founder and CIO of AHV Communities. “Everyone is really recalibrating right now,” said Lurry. “What we are dealing with is what everyone else is in this market.”

One thing they are dealing with are cost overruns, which Lurry said is a big issue due to supply constraints. “It has been challenging to deal with,” he explained. “Rent growth has more than kept pace with the increase of construction costs so we have been able to come to the table in the event there have been cost overruns.”

Rinker agreed that cost and supply chain has been a major challenge. “We are grossly undersupplied with housing… Whether multifamily, single-family, build for rent or whatever you want to call it, we are still short,” he said. “There is a lot we can do to try to increase that supply.”

There are several dynamics in play when looking at demand, explained Lurry. Demand started a while ago and isn’t expected to stop. “Single-family rental ownership gained traction after the great recession when companies like Blackstone and Colony got involved in buying distressed single-family homes and renting them out and when it became apparent that that operating became successful, then it became something,” he said. “When I look at projects, as a lender, we like a good sponsor in good locations. There are always compelling deals to be done even in this market. You just have to be more selective in this market.” 

Rinker added that low density housing has been around for some time but noted that over the last five years, the rush for capital to really allocate money in this space has increased. “I think it will continue due in part to the fact that the yields have compressed so much on ground up development.” 

Switching gears, panelists talked about availability of finance and noted that leverage is down and pricing is up. “Deals really have to be compelling,” said Lurry. “Sponsorship has to be strong to make sure they can carry these projects. There is a certain element of recourse in the form of completion that we require. In order to be sure that we have folks that are constructing these projects that have the wherewithal to do so, is key. We have seen a shift in leverage and in pricing across the board.”

As millennials and Gen Zers get older, they are going to want more space, said Lurry. “I am bullish on the space in the long run.”

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