Sunstone Properties Trust and Two Tree Capital Merge

The combined company will focus on development and investment in workforce and build-to-rent communities.

Haven at Water’s Edge, a 392-unit community in Tampa where the firm is conducting value-add renovations. Image courtesy of Sunstone Two Tree

Sunstone Properties Trust and Two Tree Capital, both of Westlake Village, Calif., have merged, forming vertically integrated investor Sunstone Two Tree, or STT.

The new firm will invest in, develop and operate workforce multifamily and build-to-rent single family communities. STT’s new operations will include the acquisition and development of new build-to-rent communities, alongside the renovation and repositioning of aging workforce properties across numerous fast-growing markets.

Merger motivations

Across both its new strategies, STT’s areas of concentration will be over markets that have high costs of homeownership, a slowdown in Class A construction, diverse arrays of employers as well as employment rates and wage growth above the national average, according to Scott Maddux, STT’s new president and the former CEO of Two Tree Capital. At present, the merger’s primary markets of focus will be Dallas, Denver, Houston, the Inland Empire, Jacksonville, Las Vegas, Orlando Phoenix and Tampa. In-migration numbers and local amenities will also be a consideration.

Scott Maddux. Image by Nadia Kelm

According to Maddux, the merger’s investment focus is motivated by both an ongoing, universal housing shortage and the lucrative nature of the workforce and single family build-to rent-sectors, as well as their renter demographics. “Persistent housing shortages, high home prices and rising interest rates coupled with changes in consumer preferences are driving growth in demand for high-quality, reliable rental housing in many formats, making it an important and attractive time to be in the space,” Maddux told Multi-Housing News. Where workforce housing is concerned, STT is focusing on projects that have “exhibited resilience through good and bad economic times,” said Maddux, along with a combination of “limited supply and strong demand.”

Maddux views these focuses as reflective of larger industry-wide trends, with renters wanting both the size and amenities of individual homes alongside the convenience of a rental. Maddux explained this mindset in further detail, telling MHN that “These communities combine many of the benefits of single-family living, such as larger units, dedicated parking, backyards, lower tenant turnover with the operating efficiencies of multifamily rentals.”

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On the development end, STT is emphasizing single-family, build-to-rent communities of mostly three- to four-bedroom unit sizes, an asset class that Maddux views as “underserved since the global financial crisis,” and facing a worsening shortage. Such a strategy is motivated by the communities’ most frequent demographics. STT is targeting a broad array of renters with these developments, part of a strategy of “[addressing] this critical need for entry-level, single family rental housing that is in high demand particularly among millennials, who are now entering the household formation stage, baby boomers and empty nesters who are downsizing their homes,” Maddux added.

New leadership

Historically, Sunstone Properties had been involved in investment management for market rate and workforce multifamily projects, while Two Tree Capital served as an institutional investor in the development of single-family rental communities. Alongside President Scott Maddux, the firm’s new executive leadership will consist of CEO John Maddux, the previous CEO of Sunstone Properties, CIO Tanner Maddux, the last president of Two Tree Capital and COO Elizabeth Fujino, who served the same role at Sunstone Properties. Alongside the new C-suite, Michael Votta, previously a managing director at Sunstone Properties, was appointed to the position of Senior Vice President of Capital Markets.

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