There’s always been a sustainable business model in the single-family rental market. It has historically consisted of local entrepreneurs. Only during the past few years have market inefficiencies and increased levels of distress attracted institutional investors. This has led to widespread aggregation and the classification of single-family rentals as an investment class.
Given the velocity of aggregation combined with the increased liquidity of institutional investors, portfolios are now being traded. Sustainability for this investment class is currently unclear, as, eventually, all investors will have to determine if they’ll hold the asset for the current yield, trade in bulk to another investor, or liquidate the portfolio one house at a time. It will be exciting to see how this investment class will continue to evolve.
— Richard Caterina, senior vice president, Johnson Capital
No, I don’t believe it’s sustainable long term, for two reasons. First is the lack of operating efficiency inherent in buying pools of scattered assets. It’s terribly inefficient to lease and maintain these properties compared with multifamily units. Second, the fundamentals that gave birth to the single-family rental business are [reversing] … home prices are rising, credit will loosen for buyers, and the economics justifying the entire trade continue to become less compelling. It simply becomes too expensive to grow one’s portfolio when the economy is in recovery mode, much like investing in distressed debt. While those that have already amassed portfolios will benefit from their rising value, I expect to see a decline in the overall business as these operators eventually choose to exit through individual asset sales.
— Robert Lee, president and COO, JRK Property Holdings
Single-family home management and leasing is a viable business, and it can complement other lines of business, such as apartment management. With single-family homes, the assigned manager handles all of the activities at the property: leasing; coordination of maintenance and preparation of homes for lease; owner communications, etc. A company can’t afford the labor to manage a small number of homes, as the management fees are relatively small compared with other forms of management services. Once you have a pool of homes, from what I’ve seen, there’s clearly an opportunity for growth, profitability, and referrals to other forms of management. One way to get into the business is to acquire a firm with a single-family home portfolio.
— Lori Burger, senior vice president/director of marketing,
Eugene Burger Management Corp.
We believe the answer is a resounding yes.
Just as the institutional multifamily rental market opened up choice in housing 20 years ago, bringing long-term capital, professional management, and transparency to the apartment rental business, the same process is now occurring in the single-family rental space.
Colony American Homes and other well-capitalized institutions are buying and renovating dwellings and, in the process, revitalizing neighborhoods that were devastated by abandoned buildings and devalued home prices. In under two years’ time, institutional purchases have begun to stabilize the country’s single-family housing market. Available capital for this model is being further increased through lending facilities geared toward small owners and securitization and public offerings for large industry consolidators.
—Fred Tuomi, COO, Colony American Homes
Without using the existing inventory of abandoned and vacant housing for rentals, there would be no way to build enough units to meet the critical demand for affordable housing. The traditional means of providing affordable housing through HUD programs such as HOPE VI and LIHTC are no longer enough. The capital markets must come to grips with the fact that 48 percent of the population is considered poor. Those looking for housing predominantly can’t afford existing offerings. We must take advantage of the lower value in the market, if only for a time, to place truly affordable rental housing back into service. This will stabilize the low-income population, which in turn will decrease crime and revitalize neighborhoods. Over time, this will increase home values, building wealth among low-income homeowners, [which will] benefit society as a whole.
— Nancy Welsh, CEO, Builders of Hope