Build-to-Rent’s Evolving Popularity
As institutions active in the single-family rental space shift their attention to new development, they’re refining their approach to attract a wider range of residents.
The institutional single-family rental market is coming into its own. While the number of entities involved remains small and the acquisition pace has slowed this year in response to increased interest rates and reduced available inventory, the build-to-rent movement is taking off. It makes sense. Not only does it allow for greater control over investment volume and cost, it also helps ensure quality, consistency and marketability of property.
The opportunities are multifold, and investors are growing increasingly adept at maximizing them, creating communities that combine the space and privacy of single-family living with the historically offered amenities and interactivity that make multifamily life appealing. Now, as Diana Mosher writes in “Build-to-Rent Units Move Into Master-Planned Communities,” this new rental alternative is being incorporated into master-planned communities, often with a variety of density and home size options. “It brings in a consumer that might not otherwise have been attracted,” RCLCO Developers managing director Todd LaRue explained. And it allows the developer to build on land that otherwise would have sat vacant, waiting for single-family sales or expansion of other property elements.
Overall, build-to-rent growth has shown no sign of slowing, according to a recent report from Yardi Matrix, which tracks homes in communities of 50 or more units. As of August, nearly 50,000 units were under construction, double the amount being built at the same time last year. And this year’s completions are expected to match last year’s record-high 14,858 units. A suburban phenomenon, build-to-rent communities are concentrated in growth areas in the Midwest, West, Southwest and Southeast. With institutionally owned single-family rentals still a very small percentage of all such property and increasingly concentrated in large, new communities, BTRs are only adding to much needed supply in an underserved market.
Of course, they are not without challenges. Developers are similarly impacted by the higher interest rates that have led to much slowed SFR sales, as associate editor Gabriel Frank noted in his article “Trends in Single-Family Development” earlier this summer. Construction and takeout financing are both difficult to line up, and profit margins have dropped significantly.
But renter demand remains high. And with stepped-up amenities and mixed-use convenience contributing to their attractiveness, BTRs seem likely to continue leasing up.