Sale-Leaseback Deals Could Be the Next Big Trend for Single-Family

Sale-leaseback transactions have been common in certain aspects of the commercial real estate market—and now may be spreading to other sectors. A new analysis from Trepp Commercial about the single-family housing market sees an opportunity for homeowners to use sale-leaseback structures to pull equity out of their homes without having to move.

More significantly, institutional players also see an opportunity in this area. One indicator of this interest comes from Invitation Homes, which, per the Wall Street Journal, is planning a sale leaseback program as another channel to add to its 80,000 homes.

The pandemic has catalyzed the potential for sale-leaseback transactions to find a place in the single-family market. While the housing market is much more stable today than it was during the last recession—when many homeowners faced foreclosure—the market has been stabilized partially by widespread forbearance policies. When those policies expire or when past-due mortgage payments add up, homeowners may look for an alternative option. Like in a commercial deal, a sale-leaseback could help homeowners stay in their homes without the responsibility of a homeownership, Trepp says.

At the same time, the capital markets are showing increased appetite for this asset class. This year, Trepp data has noted an increase in CMBS issuances for single-family deals. In 2019, there were a total of $3.8 billion in CMBS issuances, and in 2020 through September, there have been $5.8 billion in CMBS issuances for single-family deals. The  CMBS delinquency rate for single-family homes has remained below 1% through the pandemic, while the overall delinquency rate for CMBS was 9% in August.

In addition, single-family operators have seen less of an impact on rent collections than apartment operators, Trepp says and several operators in this space have reported.

In general, demand for single-family home rentals will grow as a result of the pandemic. A recent report from Real Estate Advisors forecasts growing demand for single-family homes. Millennials in particular will drive this trend. This demographic is reaching its 30s and 40s, and many are planning to start a family. However, affordability issues have pushed them out of the home buying market. Instead, many of these people will look for single-family rental opportunities. In particular, built-to-rent product will be popular among millennials.

While this trend was already in place, the pandemic has certainly accelerated it; however, it could also change some of the rental patterns. For example, more millennials might move to suburban markets rather than city centers as a result of the pubic health crisis. It is unlikely that millennials will move too far from the city center, however, because the demographic has already established a preference for communities that offer a sense of place.

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