The Covid-19 pandemic sparked a race for space among Americans, and home prices have surged to records. The gains have outpaced wage growth, straining affordability despite historically low borrowing costs.
Homeownership is unaffordable for average wage earners in 55% of U.S. counties, up from 43% a year earlier, according to Attom Data Solutions, a real-estate analytics firm. Meanwhile, single-family landlords have reported record occupancy and fast-rising rents since the pandemic began.
Individuals, family offices, pension funds and Wall Street’s boldfaced names are shoveling billions of dollars into build-to-rent projects. Home builders are embracing the business of selling houses wholesale to landlords, and even teaming up with them to build neighborhoods that blur the line between houses and apartment complexes.
“Every institutional investor is considering this space,” said Trevor Koskovich, who heads investment sales at the property-deal adviser NorthMarq and recently represented the seller of five gated rental communities around Phoenix. They fetched $235.5 million from a Chicago investment firm.
The 943 one- and two-bedroom houses have their own street addresses, include slivers of outside space and share swimming pools. Their developer, Christopher Todd Communities, has teamed up with the builder Taylor Morrison Home Corp.to replicate these rental villages across the Sunbelt.
“Our confidence in this opportunity has only increased over the last year,” said Sheryl Palmer, Taylor Morrison’s chief executive. Darin Rowe, who runs the home builder’s rental business, expects the portion of new U.S. homes that are sold straight to investors to exceed 5% over the next few years, up from the historical average of 1% or so.
From clustered cottages to cul-de-sac McMansions, more than 50,000 houses were built specifically to serve as rentals during the 12 months ended Sept. 30, according to John Burns Real Estate Consulting. That tally—well above the 31,000 average over the past four decades—is likely low since it misses one-offs in which end use isn’t specified by building permits as well as houses in typical subdivisions that are sold to investors, said Rick Palacios Jr., the consulting firm’s head of research.
Executives at LGI Homes Inc.,LGIH 2.33%for instance, have said that bulk sales to landlords would account for as much as 10% of the builder’s 2020 home sales, or as many as 900 houses.
“The banks and lenders stopped providing financing to the lower middle class and so home builders stopped building entry-level homes,” said Thibault Adrien, whose Lafayette Real Estate began buying foreclosed homes a decade ago. “The last way to increase our exposure was to build our own.”
It was counterintuitive for businesses built on deeply discounted properties to start paying more than replacement cost to add houses, said Mr. Adrien. But after testing the strategy outside Tampa, Fla., Lafayette went all in.
Building made it possible for investors to outfit houses with their preferred fixtures and finishes at the onset. Plus, landlords found that renters were willing to pay premiums to move into brand-new houses.
“Imagine if consumers could only lease old cars, not new cars,” said Mr. Palacios. “That’s how single-family rentals have been.”
Lafayette teamed up with the private-equity firm Carlyle Group Inc. and has about 1,200 houses recently completed or under way.
American Homes 4 Rent, which owns about 53,000 houses, formed a $625 million venture with J.P. Morgan Asset Management to add to what was already the most prolific output of new rentals. American Homes 4 Rent has built 2,500 houses in more than 60 neighborhoods and has dozens more subdivisions in development.
Its Celery Cove subdivision outside Orlando, Fla. is representative, with 37 three- and four-bedroom houses that lease monthly from the $1,700s.
Tricon has a similar, $450 million partnership to build rentals with the Arizona State Retirement System. The Toronto firm said it is considering raising another fund, which could have $1 billion of spending power, to buy homes from builders.
Those homes are generally indistinguishable from owner-occupied properties and can be bought and sold one by one. Many investors are opting for projects that are closer to apartment complexes.
Investors and lenders said hybrid projects, such as Christopher Todd’s, can be financed more favorably than the same number of scattered homes while having advantages over apartments, such as being able to lease units as they are ready rather than waiting for an entire building’s completion. Developers can also adjust plans if demand falls short.
“That really mitigates some of the risk,” said Ivan Kaufman, chief executive of Arbor Realty Trust Inc.,ABR 0.14%which has originated about $1 billion of loans to build-to-rent projects over the past two years.
Howard Rudzki has turned his passion for bike riding, dogs and education into vehicles to help for good. He started out bike riding when he was 20 for the pleasure and enjoyment that a good ride provides and has been a committed cyclist ever since. Rudzki rides every week either by himself or as part of group and annually participates in fundraising rides. For the last three years, he has ridden in America’s Most Beautiful Bike Ride, raising money for The Leukemia & Lymphoma Society, whose mission is to find a cure for leukemia, lymphoma, Hodgkin’s disease and myeloma and improve the quality of lives for their patients and families.When he is not riding, Rudzki spends his time going to animal shelters across the L.A. Basin rescuing older dogs. He is committed to saving displaced, unwanted canines and rehabilitating them with proper medical and nutritional care so they can thrive in safe and caring homes where they will be a loved family member.In addition to helping animals, Rudzki believes he has an obligation to give back to underprivileged communities so that all children are able to receive a good education. Over the years, he has donated computers, printers and software to schools to help develop the future leaders of our city.
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