Build For Rent
Build-for-Rent, an offshoot of the single-family rental (“SFR”) market, is a relatively new real estate phenomenon, which – beyond individuals who may rent out their own homes – had its genesis in the 2008 - 2010 real estate melt-down. During that period the construction of new housing came to a halt, and the supply of new housing has not kept up with the need following that period. According to Redfin, the U.S. Government has estimated that the national shortage of housing is currently 4 million homes – and growing.
During the 2008 - 2010 cycle, numerous investment funds bought foreclosed homes on the courthouse steps, with the intention to rent them until the markets improved – at which time the homes would be sold. The rental aspect turned out to be so successful that large investment pools were created to buy homes from non-foreclosed owners as well as real
Build-for-Rent, an offshoot of the single-family rental (“SFR”) market, is a relatively new real estate phenomenon, which – beyond individuals who may rent out their own homes – had its genesis in the 2008 - 2010 real estate melt-down. During that period the construction of new housing came to a halt, and the supply of new housing has not kept up with the need following that period. According to Redfin, the U.S. Government has estimated that the national shortage of housing is currently 4 million homes – and growing.
During the 2008 - 2010 cycle, numerous investment funds bought foreclosed homes on the courthouse steps, with the intention to rent them until the markets improved – at which time the homes would be sold. The rental aspect turned out to be so successful that large investment pools were created to buy homes from non-foreclosed owners as well as real estate developers. For the most part, in those early-days homes were scattered around metropolitan areas. Recently, however, in some markets – particularly in the Phoenix market – developers began developing entire BFR communities, which essentially were small individual apartments arranged horizontally (but separated) so that each unit was like a small home, and the projects were well amenitized. In some cases, units were attached in a townhome fashion.
Some of the biggest REITs and investment firms are major players in the market. Firms such as Carlyle, Goldman Sachs, J.P. Morgan, and Blackstone have invested billions of dollars into companies that acquire SFR and BFR homes from developers. This is essentially because the SFR/BFR concept has been an enormous success, with each project typically leasing up before completion. The business model provides steady cash flows, rapid lease-ups with low turn-over, and multiple exit strategies. Cap rates have compressed, and terms liberalized, so that project’s (sales) cap rates in the sector have dipped into the low 4% range in many markets – with some transactions taking place even before development begins.
As historical perspective, in March 2021 an article in Builder Magazine was one of the first to declare the Build-for-Rent product as a new real estate class. In the article “WHAT COMES NEXT IN THE RESIDENTIAL BUILD-FOR-RENT MARKET?”, it was pointed out that “There will continue to be demand for rental communities even as millennials age into prime home-buying years and the homeownership rate rises. These communities can range from highly amenitized and institutionally managed to single-family homes. Mom and pop investors have known the value of single-family rental homes for decades, but the Build-for-Rent (BFR) asset class is one of the fastest growing in residential real estate.”
In March 2022 (just one year later) CNBC reported: “Demand for single-family rental homes is soaring, pushing prices to record highs, as Americans continue to want larger homes with outdoor spaces. Single-family rents gained a record 12.6% year over year in January, according to a new report from CoreLogic.”
On March 19, CBS’s 60 Minutes presented a video story entitled “Lack of Construction and Corporate Landlords Contributing to Skyrocketing Rent”. It was a thorough discussion of the housing situation in the U.S. with a highlight on BFR housing.[1]
Additional market information is available upon request.