Single-Family Rental is Surging

by | 01 July 2021

  • The single-family rental (SFR) investment market remains small but is growing quickly.
  • Blackstone acquired Home Partners of America for $6 billion, signaling a strong re-entry to the asset type for the private equity giant.
  • Growth is strongest in Sunbelt states, where land is more widely available.
  • Big institutional investors are participating, from pension funds to investment managers and private equity. CMBS issuance doubled in 2020 from 2019 levels.
  • As this investment class is still in its infancy, investors have numerous ways to capitalize on its growth.

The single-family rental (SFR) market and build-to-rent homes are becoming an ever-larger share of housing construction. Today, SFR accounts for 6% of new homes built, per Hunter Housing Economics, which estimates that this number could double by 2024, and with good reason. SFR is just getting going; in just the last few weeks, Blackstone acquired Home Partners of America for $6 billion, and KKR has formed My Community Homes. CoreLogic reported single-family rent growth of 5.3% in April and Redfin noted that institutional investors acquired 55,000 homes in Q1. Multiple indices from John Burns Real Estate Consulting and The National Rental Home Council reported hitting all-time highs.

Why is this industry segment gaining traction? Several reasons: the rising cost of homeownership, changing renter preferences (the desire for more space), demographic shifts, and availability. The vast majority of SFR is owned by smaller investors with fewer than 10 total units. Today, entire housing communities are being developed solely for SFR as professionally managed communities similar to multifamily properties, and are mostly found in Sunbelt states. These states boast outsized population growth and ample land on which to build homes.

The SFR market has seized institutional investors’ attention, including investors such as Lennar Corp, Brookfield Asset Management, JPMorgan, Rockpoint, Centerbridge Partners, Allianz, Tricon, Greystar, AHV Communities, Pacific Coast Capital, and Invesco, to name just a few. Meanwhile, pension funds are allocating capital to this product type, while SFR securitization is also gaining traction, with $8.3 billion of CMBS issuance in 2020, double that of 2019, per Trepp. Yet the industry is still in its infancy. The Wall Street Journal reported that big institutional investors own about 300,000 homes in the U.S. — just 2% of all single-family rental homes, per Amherst Pierpont Securities. In comparison, Real Capital Analytics tracked nearly 250,000 multifamily-unit sales just in Q1. SFR and build-to-rent present opportunities for investors throughout the capital stack, as platform acquisitions, equity partnerships, financing, securitization, or development.