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It was a little more than six months ago when I last sat down with my colleague, Tim Sullivan, to discuss the single-family build-to-rent (BTR) market. In that discussion, Sullivan, Zonda’s senior managing principal and in-house BTR expert, laid out the evolution of the industry and highlighted what to expect this year. Market dynamics have evolved quickly throughout 2021, so the two of us recently took time to check in on the ever-popular sector.

Q: What has surprised you the most about the BTR market since we last met?

Sullivan: As expected, the space has held up exceptionally well from a demand point of view. That success, however, has come with challenges that have become pervasive quicker than expected. BTR operators are now faced with fierce competition, high land costs, a tight labor supply, and decreasing returns.

Q: How much have returns been impacted?

Sullivan: Operators are reporting that returns are continually compressing. For example, we’ve seen cap rates generally move from the 4% range to the 3% range, and the return on cost drop from the 6% range to the 5% range.

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