New management options emerge as major investment players settle into the single-family marketplace. Alan Mallach, a senior fellow at the Center for Community Progress, shares his thoughts.
JULY 2014 | BY MARIWYN EVANS
When large investors such as Blackstone and Colony American Homes began buying up single-family homes in 2011, most observers considered the acquisition a short-term play. Now, although acquisition has slowed, the successful securitization of SFH rental income by Invitation Homes (a Blackstone subsidiary), the transformation into REITs of large single-family owners such as American Homes 4 Rent, and the creation of the National Rental Home Council, a group that includes most of these new mega-investors, all indicate large investors are in it for a longer haul. How will their business models change the dynamics of the rental marketplace?
How large a presence do these mega single-family owners represent in rental markets?
At the end of 2013, mega-investors controlled about 200,000 single-family properties. That’s not much in a national market of 13 million single-family home rentals. It’s certainly not a game changer. Still, within certain niche markets in cities such as Atlanta, Phoenix, and Tampa, mega-investors are more of a factor. Most of these buyers have concentrated on a dozen or so cities with good potential for price appreciation. The one exception is American Homes 4 Rent, which owns properties in many more markets. Even within these markets, mega–investors won’t buy just anything. They are buying mostly homes priced between 100 and 140 percent of median price in locations where the sales price-to-rent ratio is favorable enough to yield a 5 to 10 percent annual cash flow with a five- to eight-year hold period.
Which segments of the multifamily market are most vulnerable to competition from these new single-family properties?
The demand for rentals is increasing, especially in moderate and middle-income groups that a few years ago might have bought homes. Single-family rentals have always attracted families with children who want a larger space with a yard. Homes owned by mega-investors may also attract renters willing to pay a premium if they can deliver the more professional management these large owners propose to offer. And relocation companies may be attracted to the extensive portfolios held by mega-investors.
Will the mega-investors benefit from technology and economies of scale?
The jury is still out on that. Single-family management requires a lot of hands-on involvement. One management option is to partner with local third-party management companies that already handle large pools of single-family rentals for small investors. Other potential partners might be large local investors. Perhaps the most successful model will end up looking more like a franchise with local managers who have some financial interest.
By: Mariwyn Evans (REALTORMag)
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