Inside Texas’ Hot SFR Market

Single-family rentals or built-to-rent communities seem to be the answer to a housing demand that has been rising extraordinarily over the past 18 months, bolstered by the new lifestyle brought on by the pandemic. The sector is booming, outpacing even multifamily, and Texas is particularly attractive to this growing niche, with Austin, Houston and San Antonio among the most sought-after markets.  

Expectedly, the investment community started shoving billions of dollars into this newfound opportunity. Among them is Wan Bridge, a Houston-based company that has been building and operating SFR communities across the state since 2016. In mid-October, the company announced a multibillion-dollar equity influx that will materialize into 30,000 SFR homes across 50 Texas submarkets in the next five years. More about the sector’s evolution and Wan Bride’s plans in the interview below with President & CEO Ting Qiao.

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What attracted you to the single-family rental sector?

Qiao: We entered the SFR sector because we saw an opportunity to transform what has been a relatively stagnant industry. And with the COVID-19 pandemic, consumer preferences have changed, accelerating demand years in advance.

Specific to the single-family rental sector, when Wan Bridge entered the SFR sector it was not yet regarded as an asset class. I had experience in the multifamily and hotel areas but noticed the service aspect was missing in the SFR sector. Not to mention the market was fractional, with fewer institutional and dominant players than other sectors in the industry. Even today, institutional players only occupy 3 percent to 5 percent of the SFR market.

Our team recognized an opportunity and believed SFR could be the next big opportunity in the real estate industry. As it turns out, SFR has become one of the hottest markets recognized by Wall Street.

You came to the U.S. in 2016, what drew you to Texas?

Qiao: Firstly, Texas is known for its hospitality and friendly people. Secondly, Texas was—and still is—experiencing high population growth and high employment growth, and is also home to many Fortune 500 companies. Despite this growth, property prices in the state are still affordable compared to many other states.

Additionally, the rent-to-value ratio is significantly higher than in other states like New York and California. This made Texas a perfect place to launch Wan Bridge’s unique build-to-rent concept, as generating high cash flow was crucial.

Which classes of SFR rentals are in highest demand in Texas?

Qiao: Although townhomes are a prominent feature in Wan Bridge’s product offerings, demand varies and is location-specific. We aim to build a product that will be successful in the community’s location based on our in-depth research and industry knowledge.

Our team is thrilled to have the opportunity to expand Wan Bridge’s services in an already diverse product line that ranges from acreage homes and posh townhomes to lakeside residences and beach houses. To achieve this, we have built strong relationships with master-planned community developers like Land Tejas, who have seen the unparalleled value we have brought to the table already.

Looking at the SFR sector from a demand, design and legislation perspective—how has it progressed from when you first got here?

Qiao: Demand has continued to significantly increase for single-family rental products since Wan Bridge set off on our mission to offer a differentiated residential experience to a wider population.

When it comes to design, our team is continuously evolving and improving our product design based on the latest trends and resident feedback. Overall, residents can expect a high-end style with functional layouts and practical features, including open-concept floorplans, high ceilings and contemporary designs for a true blend of form and function—the same they would want if they purchased a home. With sustainability in mind, our homes feature double-pane, energy-efficient windows, extra dense insulations and high-efficiency appliances.

Tell us more about your recently announced plan to build 30,000 SFR homes over the next five years.

Qiao: This capital influx is a significant milestone for Wan Bridge. With it, we have ambitious plans to enter Texas’ top 50 submarkets by building 30,000 homes primarily in the suburbs of Texas’ major metropolitan areas over the next five years.

This investment will significantly advance Wan Bridge’s goal of continually transforming the residential rental market by developing unique, quality build-to-rent products with a focus on wellness in its communities in Austin, Dallas and Houston as we launch more developments and cultivate additional partnerships in the near future.

It is also a testament to our innovation and willingness to revolutionize how our communities demonstrate wellness from the physical aspect like walking trails and clubhouse fitness centers to wellness services such as pediatric care, sports physical clinics and vaccination services right in the community clubhouse.

How do you handle the pandemic’s woes—construction materials prices increase, labor shortage, social distancing measures etc.?

Qiao: Diversifying our sources is the key. It is vital to work with multiple suppliers for all your business needs, not only during a crisis like this pandemic but consistently, so you can be prepared for the unexpected. Wan Bridge has solid relationships with vendors and subcontractors across the industry. We believe in treating subcontractors with respect in order to maintain strong relationships, so when tough times arrive in the industry, you can lean on them to get through.

Additionally, as projects were nearing completion and the COVID-19 pandemic rocked the world, we were forced to act quickly and be flexible to make the necessary adjustments to keep construction on track. Many employees felt uneasy, fearing they could lose their jobs, with contractors asking the same concerned questions.

However, we did not halt construction for one day. Construction was considered essential by the state of Texas, so the team muscled through, implementing new safety protocols to ensure the health and safety of employees. This also meant we were able to keep our purchasing commitments on schedule with our partners.

The company took the utmost precautions, providing PPE for every employee on the construction site. Wan Bridge also thought it important to provide and donate PPE to first responders who continued working in the surrounding community. All these measures helped Wan Bridge to retain all employees, easing some financial burdens that rocked many around the country. In fact, the company’s continued construction has created additional jobs opportunities and projects are being completed on time.

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READ ALSO: Building in the Time of COVID-19

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How are Boomers different from Millennials through the SFR lens?

Qiao: At Wan Bridge, 85 percent of our residents are Millennials, while 15 percent are empty nesters, based on internal surveys. However, our homes are designed for everyone, not just one demographic. A trend due to current real estate market conditions is that many consumers are choosing to rent instead of purchase, with many younger residents desiring to live in the moment, so to speak, rather than be tied down with homeownership and a mortgage.

One of Wan Bridge’s core mantras is residents do not have to own to call it home. We believe our communities fill an important niche for those preferring to rent while holding onto the luxury and space of homeownership and other time-saving benefits of apartments such as landscaping and maintenance services.

Many say that the outstanding performance of the SFR sector since the onset of the pandemic is hardly sustainable. How do you see the sector perform over the next 12 to 18 months?

Qiao: The demand continues to remain well over supply and we expect that to continue for the foreseeable future. With a hot market and low inventory, proliferated by the pandemic, the current housing shortage in Texas makes build-to-rent communities virtually essential to keep up with demand. The single-family rental sector, and BTR specifically, is not a fad.

As the state’s population continues to grow, Wan Bridge wants to be part of the solution to ensuring there are enough homes to support our communities. Currently, there is not enough supply to handle increased demand. We have continued to fill our pipeline by purchasing land since 2020, with the goal of breaking ground on 20 to 30 new build-to-rent communities in the Houston, Dallas and Austin suburbs within the next 12 months.

Were you to expand into a market outside of Texas, where would that be?

Qiao: We do not have immediate plans to expand beyond Texas. However, the sky is the limit and this equity commitment is a proof point of demand for this type of real estate, and we don’t see this changing anytime soon. Although we’re currently set on expanding in Texas, where we want to solidify our position as the premier single-family build-to-rent company, our team has not ruled out expanding to other states.