In the ever-evolving landscape of real estate, a new player has emerged, changing how developers, construction companies, and lenders approach housing projects. Build-to-rent single-family housing has become an emerging asset class, garnering attention and billions of investments. This is specifically characterized by clusters of homes leased to individual tenants,
Building a New Landscape: The Boom in Build-to-Rent
Traditionally, the housing market has been dominated by individual homeownership. However, with high mortgage rates and limited inventory driving up home prices, built-to-rent single-family housing has gained traction. Legacy MCS, a third-generation multifamily contractor in Austin, Texas, exemplifies this shift, with its recent exclusive focus on build-to-rent projects, totaling 916 single-family units across various developments.
The momentum behind build-to-rent is evident in the industry’s growth, constituting 1.7% or 340,000 rental units in the U.S., according to CBRE. The National Rental Home Council reports a staggering 270% increase in build-to-rent completions since 2019, with 2023 seeing a 62% rise, totaling $7.5 billion in investments.
Key Players and Investments: A Billion-Dollar Affair
Major players like Blackstone, Invitation Homes, and Pretium are spearheading the charge, injecting billions into the build-to-rent sector. Blackstone’s acquisition of Tricon Residential for $3.5 billion and an additional $1 billion investment in new developments underscore the sector’s appeal. Similarly, Invitation Homes, already the largest single-family rental landlord in the U.S., plans to allocate $1 billion for new home purchases in 2024.
Pretium, not to be left behind, recently invested $2.5 billion in build-to-rent houses. Concurrently, developer Middleburg Communities opened its first build-to-rent project in Alabama and secured financing for 260 units in Virginia, totaling a $500 million investment. These moves highlight the robust financial backing and confidence in the build-to-rent model.
Speed, Efficiency, and Financial Benefits: The Build-to-Rent Advantage
One of the driving forces behind the surge in build-to-rent popularity is the accelerated construction timelines. Legacy MCS boasts completing 40 units a month, going from groundbreaking to move-ins in as little as eight months. This is a stark contrast to the typical two-year development cycle of traditional multifamily projects. This efficiency allows developers to start leasing before completion, generating revenue sooner and mitigating interest expenses on construction loans.
Fast-tracked move-ins during construction are reminiscent of traditional home construction practices. Despite initial skepticism, tenants are willing to live in a build-to-rent property amidst ongoing construction, raising demand for this housing model.
Premiums and Tenant Appeal: The Build-to-Rent Proposition
Build-to-rent homes, despite their premium over apartment rentals, are experiencing high demand. Legacy MCS reported full occupancy upon completion of their projects, demonstrating a consistent interest from renters. Aaron Tishkoff, Assistant Vice President of Investments at Middleburg, notes a 15% to 20% premium on build-to-rent rates over similar-sized conventional multifamily units. Research from John Burns affirms these premiums, showcasing the financial viability and attractiveness of the build-to-rent model.
Operational Evolution: Adapting to the Build-to-Rent Wave
As build-to-rent gains prominence, companies are evolving their operational strategies. Some are establishing new business divisions, such as property management arms devoted specifically to build-to-rent communities. Pretium’s recent acquisition of BH Management Services exemplifies this trend, reflecting the need for specialized management in this sector.
Innovation is rampant, with major apartment developers and even home builders like Lennar and D.R. Horton jumping on the build-to-rent bandwagon. The industry is witnessing a transformative period, driven by the undeniable financial advantages and escalating demand for this appealing asset class.
In conclusion, the rise of build-to-rent single-family housing marks a pivotal moment in the real estate landscape. Developers, construction companies, and investors are reshaping their strategies to align with the accelerated timelines, financial benefits, and high demand associated with this emerging asset class. As the build-to-rent wave continues to swell, it brings with it a promise of economic viability.
If you are looking into build-to-rent single-family housing opportunities, reach out to our team of professionals with Onward.