Evolution of Rental Housing—The Rise of Build-For-Rent
“Past performance is not an indicator of future results.”
These words have never been truer as we emerge from a time period classified by uncertainty and rapidly changing market dynamics. Each year is not without its own unique characteristics and challenges and most recently, the unprecedented disruption caused by the pandemic has spurred sudden shifts in everything from where people want to live and work, to how they purchase goods and services. In sifting through the lifestyle changes and preferences that have emerged as a result of this disruption, and what it means for the real estate sector, a handful of trends have surpassed fad classification and instead are viewed as existential changes that we expect will persist.
Notably, flexibility about where people live and work is a driving force that’s changing the landscape of the country. This flexibility is accelerating trends that already existed prior to the pandemic—the migration to the Sunbelt and lifestyle preferences focused on less dense living. The confluence of these trends, coupled with housing affordability issues that are prevalent across the entire country, have driven demand for and interest in build-for-rent (BFR) housing. Today, BFR housing is changing the way people rent and think about homeownership.
Defining Build-For-Rent
Build-for-rent housing, a product innovation within the multifamily sector, has been identified by John Burns Real Estate Consulting (JBREC) as a dedicated purpose-built community of single-family detached or attached homes, where walls can be shared, but units generally cannot be stacked. BFR developments are unique in that they typically benefit from a full suite of amenities and a dedicated property management staff, much like a garden or midrise apartment community. However, instead of vertical apartment buildings, these properties are generally standalone homes with a private yard. Renters have much more space without compromising on the convenience, amenities and support staff typically associated with renting. BFR housing is one of the most in demand, but also one of the most unavailable, asset classes in the country, positioning it as a prime disruption-based opportunity that has upended conventional thinking and traditional societal norms.
Build-For-Rent History
The emergence of build-for-rent housing began in 2010 in the aftermath of the Great Financial Crisis. The crash of the US housing market caused a significant amount of home foreclosures, which according to the National Real Estate Investor, provided the opportunity for private and institutional investors to acquire over 240,000 single-family homes at significantly discounted values, and market them for rent. For several years the build-for-rent segment operated most similarly to what we now view as the single-family rental (SFR) asset class, where rental homes were scattered within established for-sale residential communities and not being professionally managed. However, in 2015, early BFR movers introduced entire communities of horizontal detached apartments, with cottage-style units, dedicated on-site property management, and typical multifamily amenities like a clubhouse and pool, which allowed the distinction between SFR and BFR housing to become apparent.
After introduction by early-movers, the BFR asset class started taking hold across the country, until demand skyrocketed in 2020 when the pandemic supercharged changes in people’s living preferences. According to a Walker & Dunlop study, BFR entered the pandemic with a 20-year high in occupancy rates of 94.4% coupled with the lowest vacancy rates since 1984 due to persistent demand and continued undersupply. Much has been written about the population influx in Florida and Texas that has been driving up home values and creating a competitive dynamic in the residential for-sale market, often making homeownership a challenging goal for a subset of would-be homebuyers. While BFR was already an in favor asset class, we are witnessing an increase in institutional demand for the product type, especially in the Southeast, to meet the growing demand of new residents and households.
Halstatt’s Involvement
Halstatt recently announced two capital commitments to develop build-for-rent communities in Fort Myers, Fla. and North Port, Fla. The Fort Myers project, Odyssey by Soltura, will feature 129 units supported by a clubhouse, community social and fitness rooms, a pool, firepit and dog park. Similarly amenitized, the North Port project, Stillwell at Wellen Park, will have 274 units and offer residents access to a clubhouse, fitness center, club lounge, game room, resort style pool, fire pits, dog park, bocce court, and walking track. Both properties are intentionally situated in established master-planned communities in order to take advantage of the synergies created by other commercial developments within the broader community. For example, the Fort Myers project is located within The Forum, which is complete with restaurants, retail, educational and medical facilities, assisted living, residential communities, and public parks, and the North Port project is situated within the community of Wellen Park, which includes a Publix-anchored retail center, the Atlanta Braves spring training facility, and a vibrant mixed-use hub that is expected to house retail, office space, and a large lake complete with recreational activities. Both developments feature an array of one-, two-, and three-bedroom residences offered in a clustered, horizontal cottage format, each complete with a private outdoor yard and patio.
Our excitement for the BFR segment is evident, stay tuned for Halstatt’s next piece in this series, which will focus on BFR’s target demographics and renters’ evolving living preferences.