What’s Driving the Acceleration of SFR, BFR?

A new report from the ULI Terwilliger Center and RCLCO Real Estate Consulting examines the evolution of the single-family rental and build-for-rent segments of the housing industry, which have grown exponentially during the COVID-19 crisis. According to the report, the single-family rental market is helping communities better meet the changing demands of moderate-income households by offering more housing alternatives.

“What’s happening now is substantial. It is going to be a part of the market long term,” Christopher Ptomey, executive director of the ULI Terwilliger Center for Housing and part of the team that produce the report, Low-Density Rental Housing in America, told Multi-Housing News.

The hot SFR and BFR housing markets was discussed during the ULI’s Spring Meeting in a panel with a similar title, “Meeting Emerging Housing Needs through Low-Density Rental Development.”

While single-family rentals have been providing housing for Americans for decades, a rise in purpose-built and institutionally managed SFRs is a relatively new concept that has been growing in recent years often backed by institutional investors. Institutional investors and SFR aggregators became active following the subprime mortgage and Great Financial Crisis which led to thousands of foreclosures and homes being abandoned, Ptomey said.

During the COVID-19 crisis, work from home became more common and Millennials who were ready to leave urban areas for suburbs and form households, were among those turning to SFR and BFR communities. For Millennials who were starting families and in need of more space, the SFR market became a popular choice, particularly for those seeking a more flexible and affordable option than homebuying but were also were attracted to amenity offerings and professional management operations.

Todd LaRue, managing director at RCLCO and one of the report authors, said RCLCO was not surprised by the tremendous market depth for low- to mid-density rental housing. But they were surprised by the variety of products and concepts. Detailing the differentiation of the concepts and product types is a main part of the 24-page report.

Other key points include:

  • Demographic trends and affordability challenges leading to growth in the institutionalization of purpose-built SFRs;
  • The evolution of the SFR landscape;
  • Operating metrics and financials.

Ptomey told Multi-Housing News the goal was to show where the SFR and BFR development was happening, what was driving it and where the money is coming from for the properties.

LaRue said the new report was built on last year’s ULI and RCLCO report, Family Renter Housing.

“Since then there’s been so much capital infused into this space,” LaRue told Multi-Housing News.

LaRue also noted terminology that was being used “was all over the place” and said the report’s aim was codify the language and explain the sector “because it’s very diverse.”

Key Characteristics

The report outlines key characteristics of each purpose-built SFR model and includes project profiles.

  • Horizontal multifamily: is composed of dense single-family detached units, as well as townhouses and duplexes for the smallest units. These communities can achieve densities of nine to 14 dwelling units per acre and generally have between 100 to 150 units. They are typically developed on land zoned for commercial or multifamily uses.
  • Build-for-rent single-family attached: These housing options encompass a broad spectrum of community configurations, unit types and sizes. Units generally have two or more bedrooms and are larger on average than multifamily units, but smaller than traditional single-family homes.
  • Build-for-rent single-family detached: These are the most similar to SFR units owned by institutional aggregators and small-scale investors. The communities are predominantly located in suburban locations and platted as individual residential lots. They generally have three or more bedrooms and are significantly larger on average that multifamily units sizes.

The report also notes the wide array of household types that are attracted to the SFR and BFR market include those who are different from traditional multifamily renters. LaRue added that’s a big change in how the industry should think about housing going forward.

Ownership Models

The report looks at three general ownership models: small-scale investors/owners; institutional SFR aggregators/scattered site: and purpose-built SFR communities/BFR. Ptomey said small-scale investors and owners still represent more than 97 percent of the existing market and usually own only a few properties. But he said he expects that number will come down as more institutional money drives it forward, making acquisitions, deals with developers and consolidation within the industry.

Last week, Blackstone agreed to acquire Home Partners of America, a SFR company that owns more than 17,000 homes in the U.S. for $6 billion through its Blackstone Real Estate Income Trust Inc. Last August, Blackstone led a $300 million minority investment in Tricon Residential, which now owns more than 35, 00 SFR homes and apartments in the U.S. and Canada.

The report notes that purpose-built SFR and BFR communities, the newest of the three categories, operate much like an apartment community. It also states that BFR, given the strong tailwinds for the segment, have attracted many new players who have entered or are considering the asset type including REITs, developers, investors, homebuilders and crowdfunding platforms.

BFR townhouse and duplex communities are most commonly found in the Sunbelt communities with lower living costs. SFR rentals have become prevalent in the Mountain West, Midwest, Sunbelt and Southern California and are generally found in established suburban infill locations.

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