Real Estate News and Market Moves Week 51

Insights from IMN: SFR East Pt. 2

Read below for the remaining notes from the Single Family Rental Forum (East) that are specific to build-for-rent, and don’t miss out on the recordings from Tyson and Alex’s sessions at the forum!

Notes

Build-for-rent is the only game in town.
Nationwide 45,000 current BFR in pipeline. There were 27,000 in 2023. There were 7000 in 2020.
In BTR communities, think about what do we want to charge them for vs. what do we want to give them for free?
Outdoor fenced space and smart home tech is expected in most BFR.
Maintenance experience is the number one reason tenants leave BFR.
BFR tenants are stickier than multifamily.
Leverage lessons learned from BTR pioneers.
Prospect pool For BFR overlaps multi and scatter sites.
BTR residents often want less onsite people presence. Belief is they want freedom of interaction in their experience.
Adjust what has been pertinent in multifamily and what has been pertinent in SFR to a better product.
What is the difference between a value-add and opportunistic fund?
One owner is looking to exit to middle to high sevens on yield on cost.
Cap exits are high 5’s, low 6’s for some Class A product.
Turnover cost projections should escalate: $500 first year, $850 second year, $1000 third year.
Consolidation and density of BFR assets can be an issue for insurance companies.
Owners should write a narrative about deals/assets for insurance providers.
2-3% rent growth is always appropriate.
Rents are flattening.
Buyers are focusing on untrended rents.
Getting the pig through the snake, as an analogy for getting through current excess rental inventory absorption to get to a gap that will exist in a couple of years.
A lot of opportunities to buy aged C-class homes at 8, 9, 10 caps.
Small investor expense ratios are 40%.
Large operator expense ratios are 37/38 %.
Large platforms/institution expense ratios are 33/34%
Big benefit of blanket insurance policies is to drive costs down.
A lot of BFR is looking for a bridge product for 2 years to hope rates get back down in the 5% range.
Cannot use HPA on BFR communities you plan on selling based on cash flow.
5-18% rental premium being achieved based on new construction communities compared to new construction scatter sites.
For real time comps go to biggest operators BFR, small multifamily.
More confidence about the cost of construction having stabilized.
Some products which will not be good for retail buyers will also not be good for rentals.
What is core + capital?
On-site, timely maintenance is #1 amenity for BFR.
You are buying a stabilized untrended yield on cost.
Apartment data is very good for BFR.
BTR more resilient to flat rental growth.
Fundamentals of BFR are normalizing.
Look at supply coming into any market you are developing.
Look at yields that are accretive to debt.
Investors in 2021 and 2022 looking at just yields and not market value of their assets.
Put together asymmetry in your investments, cap the downside but stack upside.
Underwriting the choppiness for the next 5 years, supply constraints will make a huge demand.
Fundamentals are stronger now than they have been in the past 5 years.