“Build-to-rent” means what it sounds like: A builder constructs single-family homes specifically designed for renters. Also known as “build-for-rent,” these communities began in Phoenix during the Great Recession and have since spread across the Sunbelt. There were 83,000 build-to-rent construction starts last year, accounting for more than 8% of all single-family construction starts. Analysts believe demand will remain strong because the supply of for-sale homes remains tight due to high home prices and mortgage rates.
Developers, investors, lenders and borrowers in this growing industry gathered in Nashville last month for the Information Management Network’s Build-to-Rent East conference. Here are some key takeaways:
Legislative Updates
A state bill introduced in Georgia would limit the percentage of single-family dwellings a corporation may own, with the permitted ownership percentage decreasing over the next few years.
Several other states have introduced bills that require corporations to register with the secretary of state any single-family homes the corporation owns that are used or offered for use as rental properties. These bills would make build-to-rent communities more complicated and potentially even hamper industry growth.
To that end, build-to-rent developers and investors have developed a unified message: They provide new home opportunities to those who cannot afford the steep price and/or maintenance costs of single-family home ownership.
Capital Sources
Build-to-rent has traditionally been comprised of large institutional investors, but there has been a shift recently to private investors. Lenders were seeing institutional groups focused on preferred equity and mezzanine debt. Now, lenders are seeing joint venture groups coming back to the market looking for strong sponsors, sponsors with a successful build-to-rent portfolio and top-tier market locations.
Community Trends
Developers are offering more “low touch” amenities, such as dog parks and tot lots, and move away from Class A amenities because of the cost of long-term maintenance.
Fannie and Freddie
Lenders are seeing Fannie and Freddie in the build-to-rent space and stressed it is important to review a community’s master plan up front to confirm the community style and planned lots will work for the agencies.
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