The dramatic increase in work from home has opened the possibility for many renters to move away from cramped and overpriced apartments to spacious and, oftentimes, more affordable single-family rental homes in suburban and rural areas. This growth has not gone unnoticed by lenders, developers and investors.
Kaplan Residential, a company that focuses on residential projects in the Southeast, recently acquired three land sites in Georgia and Florida for the development of build-to-rent townhome communities. President Morris Kaplan talked to Multi-Housing News about the single-family rental sector’s evolution and revealed why he expects interest in the build-to-rent sector to be permanent.
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How much has the pandemic accelerated renters’ interest in single-family rental homes?
Kaplan: The pandemic has accelerated the build-to-rent space by 5 to 7 years, pulling forward suburban residential demand, increasing the amount of capital—both debt and equity interested in the space—and validating the early proof of concept communities.
Increased adoption of remote work and telecommuting have allowed for greater flexibility with respect to the distance a person can live from an office, growing demand for personal space in suburban neighborhoods. Prospective renters want more square footage and less shared communal areas. They want to take their trash out to the street, have packages delivered to their house/townhome and a private backyard.
Do you think demand for this asset type will decrease once offices reopen and employees are requested to be physically in the workplace?
Kaplan: No—for two reasons. First, we believe the shift to remote work is real and permanent, even if the employee is commuting to the office a few days a week. This alone dramatically changes the calculus for a prospective renter when selecting his/her location for a home.
Second, people want more space—bottom line. Renters now have a similarly priced alternative for traditional multifamily apartments, where their floors do not have to be someone else’s ceiling. People opting for build-to-rent townhomes and single-family homes typically want more square footage, privacy and an extra bedroom for an office, gym, guest room, playroom, etc.
What is the main demographic segment searching for a single-family rental house nowadays?
Kaplan: The majority are empty nesters looking to downsize; single individuals; telecommuting Millennials wanting more space; and Millennials looking to start families. Overall, these are people who want more space than an apartment and don’t want to worry about the maintenance associated with owning a home.
As the popularity of this asset type increases, have GSEs and other financial institutions expanded their offerings to the single-family rental industry?
Kaplan: Kaplan Residential does not work with GSEs, we work with private capital sources throughout the capital stack. We have seen that all types of private capital are incredibly aggressive in investing in build-to-rent townhome/single-family communities.
How could the single-family home rental sector help with the growing affordable housing crisis?
Kaplan: We believe that the build-to-rent sector can help the growing affordable housing crisis if local governments partner with developers to create communities that utilize available government programs. Development firms should engage with charitable organizations in their markets to meet elected officials and changemakers to assist the communities they serve.
For example, Generation Atlanta is the first new residential high-rise in downtown Atlanta to participate in the Atlanta Housing Authority’s 5-Star Tenant program. Kaplan Residential championed for the city’s first-ever Prescient light-gauge steel structural system, which helped the development comply with the city’s initiative for increased affordable housing.
Do you anticipate any setbacks caused by labor and material shortages for your build-to-rent projects across the Southeast?
Kaplan: We don’t anticipate additional setbacks and we are working through the same supply chain disruption hurdles faced by all developers, construction companies, architects, etc. With our broad portfolio of investors, stakeholders and partners, we feel confident in the timeline of our upcoming projects and look forward to debuting these state-of-the-art build-to-rent communities.
What Southeast markets have withstood pandemic-induced challenges better and why?
Kaplan: The Southeast’s attractive low taxes, land availability, higher quality of life, favorable weather and lower cost of living helped the region withstand pandemic-induced challenges compared to other areas of the country.
We anticipate increased migration to states like Georgia, North Carolina, South Carolina and Florida, for the reasons listed above, and strong suburban markets with proximity to emerging downtown cities—they offer renters the ability to enjoy the best of both worlds.
What are your expectations for the sector for the second half of 2021 and beyond?
Kaplan: Kaplan Residential believes the demand and interest in the build-to-rent sector is permanent, and this is only the beginning. While there is a place for all types of multifamily product, the build-to-rent sector is capturing a significant amount of the market share.