Build-To-Rent Communities Emerging as Housing’s Next Great Niche
The single-family home rental business has been around for years. Lately, it has been gaining momentum as institutional players and multifamily companies enter into a market that some say is providing a great opportunity for income for its long-term holders.
Lee Bradford, President of Property Management, DHI Communities, a division of D.R. Horton, Dallas; and Darren Williams, President, Portico Property Management, Dallas; joined a panel during RealPage’s RealWorld Conference in Las Vegas in July led by Jay Parsons, Chief Economist and Head of Industry Principals, to discuss investment, management and development trends.
Single-family rentals (SFR) and build-to-rent (BTR) communities are similar, but it’s the BTR model that is grabbing today’s headlines.
SFR took hold during the Great Recession a decade ago when foreclosures led to cheap homes that were purchased en masse by institutional players on an individual basis.
Today, developers are creating neighborhood communities that include dozens, if not hundreds, of homes in selective markets, playing to those who might prefer more living space and a yard compared to traditional apartment living or who can’t afford or choose not to invest in single-family homeownership.
SFRs Seeing 30% More Online Traffic
Williams said the public needs to be educated about SFRs’ definition.
“As an industry, SFR-BTR is not ubiquitous,” he said. “There’s a newness factor to all of this that helps to generate attention. On our website, we’re seeing 30 percent more traffic to our SFRs than our apartments – this could just be a curiosity thing. Our pitch is: Come check us out as another option in your search.”
He said he’s seeing a roughly $600 premium to the upside in rents between single-family rentals and comparable apartment homes.
“We don’t expect that to continue, and the more of this type of product delivered that gap should shrink,” Williams said. “But we expect it to continue to outpace suburban garden style apartments.”
Many players, including Greystar and RangeWater, are growing their portfolios in this niche. SFRs and BTRs can be found in most parts of the country.
“Given the work-from-anywhere movement you could say that Oklahoma is Texas’ next new market,” Williams said. “Today when the [vast majority or companies are] hiring, the first question a job candidate asks at a job interview is, ‘can I work remotely?’ We don’t see that desire slowing.”
Bradford said that given the work-from-anywhere mood, suburban rentals are popular now.
More Room, More Dogs
Just like in multifamily, one of the first questions BTR leasing professionals are asked is regarding pet policies.
“The BTR space is much more attractive to pet owners, 70 percent of our renters have dogs,” Williams said.
Bradford said DHI Horton residents are allowed up to three dogs. This can lead to higher expenses given the larger yards and landscaping costs. It can also lead to higher fees and chances to charge premiums for the homes, the panelists said.
“We watch pricing on every lease,” Williams said. “If we’re seeing that our oversized lots are popular, we add price premiums to them.”
Nonetheless, maintenance costs and management differ greatly from apartment buildings, they said.
“We believe you can support these properties with roving maintenance teams and still give great customer service,” Williams said.
Bradford said she notices that these residents “truly” care about the condition of their homes.
“More so than in apartments, these residents are treating these homes as their own,” Bradford said. “Our residents’ expectations are the same or even higher than that of apartment renters, given that often this is their first single-family home.”
DHI Communities is a lease-up operator.
Bradford said that about 50 percent of its renters come from apartment living and 50 percent come from single-family homes.
“These renters are used to not having a property manager onsite,” Bradford said. “We maintain a leasing staff on the property and our maintenance and management staff is centralized.”
When ‘The Home’ is the Amenity
SFR-BTR is attracting unique clientele.
“SFR renters’ average age is 41,” Bradford said. “But ours are around 31 to 36. Somewhat surprisingly, we’re getting a lot of interest from students and their roommates who want to live in a home rather than an apartment.”
Williams said that one of the key demographics driving the interest in BTR is professional single women who appreciate the additional privacy and safety…particularly with attached garages.
While apartment communities emphasize their amenities, a common refrain among SFR-BTR operators is that the “home” is the amenity. There are special perks that can help drive the lease, the panelists said.
“Our black-brick homes are popular, so we add a ‘pretty premium’ to them,” Bradford said. “We never saw that in apartment leasing. Tornado shelters are very popular in Oklahoma. We’ve also learned that it’s important that these homes come with garages large enough for full-sized trucks, because those are so popular in Texas.”
The panel said that developers are looking to add more storage space to these homes’ designs, too.
Williams said that leasing agents need to be trained on how to sell this “unique” product.
“Just because the person is great at leasing high-luxury apartments doesn’t mean they know how to sell these homes,” Williams said. This is a different product with different demand drivers.”
They also require unique retention efforts and pitches.
Bradford pointed out that these homes have more space than apartments, so the residents have more “stuff,” which means it’s more difficult and expensive to move.
“This is a point we often discuss throughout the renewal process,” she said.
Industry’s Primary Challenges Today
In addition to rising interest rates and materials costs, among the challenges today to expand SFR-BTR portfolios is acquiring land, Williams said.
“Land is a natural governor,” he said. “You need more acreage and the demand here [in Texas and other markets] has driven up the price.”
Resistance from “the locals” is another barrier.
“If you are building housing, there will be NIMBYs,” Williams said. “But SFR communities are typically an easier sell to local officials than apartments.”
Bradford said when DHI Communities is developing a new community, “we sit down with our adjacent for-sale neighborhoods and explain to them what we’re building and who will be living there because existing homeowners can become concerned.”