Wall Street’s zest for a corner of suburban real estate long left to small landlords is reaching new heights, attracting institutional investors, homebuilders and apartment managers during a pandemic that has ignited demand for larger homes.
The pension manager for the Canadian Mounties is the latest investor in single-family rentals, joining JPMorgan Chase & Co.’s asset-management arm and Nuveen Real Estate in a bet that there are lots of Americans who want spare bedrooms and backyards, but don’t have cash for down payments.
“It’s really an inflection point in SFR,” said Michael Carey, a senior director for Altus Group, an advisory firm. “It used to be an alternative asset class. Now people look at it as a solution.”
Lennar Corp., the largest U.S. homebuilder by revenue, is preparing to make a major push into rental homes, while rival DR Horton Inc. is increasing development as well.
Apartment Owners
Apartment industry players are also warming to rental homes, especially those built in contiguous communities, where they can be managed like multifamily buildings and financed with loans from Fannie Mae and Freddie Mac.
Greystar Real Estate Partners, the largest property manager in the U.S., is currently managing roughly 1,500 homes on behalf of clients. That number could grow to 25,000 homes in five years as Greystar’s multifamily clients embrace rental houses, said Mike Clow, executive director for the firm’s third-party portfolio.
“Three years ago I would have said this was a fad,” Clow said. “But it’s become more prevalent because it’s filling a need for consumers.”
Prior to the U.S. foreclosure crisis, investors viewed maintaining portfolios of scattered rental properties as unwieldy, preferring to invest in apartment buildings where a maintenance call meant riding the elevator – not driving a service van across town.
Small landlords still own the vast majority of single-family rentals, but companies such as Invitation Homes Inc. and American Homes 4 Rent have demonstrated that large portfolios of rental houses can be operated as efficiently as apartments, in part because of renter demand for professionally managed homes.
Pandemic Push
Then Covid-19 accelerated the trend, pushing Americans to seek larger living spaces, and forcing investors to find places to allocate capital at a time when hotels, offices and malls face uncertain prospects.
The influx of new capital helped attract Hunt Cos., which owns more than 136,000 apartments. The El Paso, Texas-based company has developed and managed single-family rentals on military installations for decades, but its interest in expanding beyond bases was stymied by investors’ unwillingness to embrace the asset.