top of mind
Changing Rental Housing?
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.
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 o;er. 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