Build-to-RentMaster-Planned Communities

Master-Planned Communities Welcome New Build-to-Rent Homes

Don Walker Headshot
Jody Kahn

Don Walker

Jody Kahn

August 14, 2019

Many people love living in master-planned communities for the lifestyle, which includes thoughtful land planning, recreational amenities, and good schools. Soon you could live in a new home in one of these gorgeous communities—without saving for a down payment and committing to years of mortgage payments, as build-to-rent (“BTR”) homes are popping up in masterplans across the country.

Acceptance of Renting Supports BTR Growth

In past housing cycles, you had to buy a new or resale home to live in a master-planned community, although some included a modest number of apartments. However, investor-owned single-family rental homes emerged in many popular masterplans since the Great Recession and housing correction, offering access to the lifestyle without owning the home. People of all ages appreciate the convenience and mobility that renting offers. In the last three to five years, many more people have “rented” someone else’s car through a rideshare service or “rented” a stranger’s home for a vacation. Today, both young and mature singles and couples are electing to rent in walkable neighborhoods near the restaurants, clubs, shops, and entertainment that they love.

Master-Planned Community Developers Appreciate the BTR Concept

A handful of BTR communities have been completed in masterplans, and more are in planning and construction. We reached out to over a dozen top developers, and most are evaluating the BTR concept or have a concrete plan for including this new segment.

"A rooftop is a rooftop, which drives activity."

William Olson, senior vice president for community developer Newland Communities, observes that BTR homes could add an additional housing segment to the masterplan and serve many future residents:

  • Families preferring to rent a home instead of an apartment
  • People choosing a rental for the flexibility and “lock-and-leave” lifestyle
  • Relocating workers who aren’t ready to purchase a home
  • People evaluating the masterplan before buying a home
  • People waiting for a home to be built
  • Military families who need flexibility when reassigned
  • Seasonal residents

In a recent podcast, John Burns described how master-planned community developers are waking up to build-to-rent homes as an opportunity:

“Wait a minute, these are people who want to test drive our master-planned community for a while and will then become homeowners.”

Jump to 8:15 in the episode to listen to the changing rental landscape.

In July, John Burns explained on CNBC that home builders and build-to-rent operations such as AHV Communities are producing complete neighborhoods with homes dedicated for rent.

New Challenges and Opportunities for Master-Planned Communities

We reached out to the developers behind our 2018 Top-Selling Master-Planned Communities ranking to understand their considerations for including build-to-rent product.

  • Phoenix is the epicenter for BTR communities. The intersection of multiple large masterplans, proactive developers, and rapid population growth led to the planning and construction of some of the first BTR homes in masterplans.

  • Plan the right location. A BTR community needs to connect to infrastructure created to support a higher volume of traffic and density. In the Verrado (Phoenix) and Daybreak (Salt Lake City) masterplans, the developers positioned the BTR sections along arterial roads inside the masterplans.

  • BTR fits the density transition plan. Dan Kelly, senior vice president at DMB Associates, observes that build-to-rent product fits well in the developer’s planned transition from higher to lower densities. It’s less dense than apartments but more dense than typical for-sale detached and attached product.

  • Focus on lifestyle. Within the Daybreak masterplan, one planned BTR location sits adjacent to the restaurants and shops in the town center with views of a man-made lake. Management recognizes the demand for rentals with a lifestyle focus in a walkable “surban” location.

  • Design and maintenance are key. The BTR units may be highly visible from arterial roads, town centers, and recreation amenities and need to look good. Cameron Jackson, director of marketing at the Daybreak masterplan in Salt Lake City, expects BTR builders will spend more on exterior architecture than for similar affordable for-sale homes, and the investment can be amortized over a longer holding period.

  • Amenities offset longer commutes. Spencer Rinker, president and co-founder of build-to-rent company AHV Communities, indicates his team will consider a future masterplan location, though the company’s completed stand-alone communities rival mini-masterplans. Spencer observes that the masterplan locations typically require a longer commute to metro employment centers; however, the appeal of the lifestyle and amenities could offset the commute.

  • Developers identify two differences from for-sale product:
    • Marketing costs. Builders pay a marketing fee out of each home closing to the master developer to cover promotion on the MPC website, community signage, and a presence in the welcome center. BTR developers don’t want to pay this fee, especially since they don’t have a sale to fund the payment, but they need promotion because developers restrict signage that rental communities typically rely on. Developing the right financial structure is still a work in progress.
    • Use of community amenities. Homeowners pay for maintenance of the amenities through their Homeowner Association (HOA) fees. The developer needs a mechanism to charge the BTR community owner a fee to contribute to the maintenance of community amenities if the rental residents are going to use the facilities. This additional monthly cost may challenge the BTR community’s financial feasibility or require a discount to the land value.

Homeowners' Grumbles Will Prove to Be Unfounded

Master-planned community developers expect some grumbling about renters, over three main concerns:

  • Owners’ perception that apartment dwellers are transient. Buyers waiting for delivery of their new homes may create some rental turnover; however, single-family rental portfolio operators report their carefully screened renters tend to stay in place for several years.
  • Worry that home values will be depressed by the dissimilar density and ownership. The build-to-rent homes are professionally managed and maintained and represent less of a threat to aesthetics and value than individual homes rented out by their absentee owners within the same masterplan. The typical BTR project in our database of active projects is over 125 units. These are institutional-level investments that will be maintained by their owners to maximize value.
  • Traffic implications for streets and recreational centers. Developers are planning for the additional households through careful site selection and amenity phasing. The BTR owners will contribute to the upkeep of the shared facilities.

Within the next two years, we expect to see completed build-to-rent sections within many of the nation’s top-selling masterplans. Some masterplans in Phoenix, Dallas, and Austin have already welcomed new residents who choose to rent.

Contact Us for More Insights

Our team has helped numerous developers and builders evaluate and complete successful build-to-rent projects, with even more in the planning and construction stages today. Please contact Don Walker for more insights on build-to-rent communities.

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About The Author

Don Walker Headshot
Don Walker
Managing Principal
Don has 30+ years of experience in real estate finance and operations, including running a Top 40 homebuilder, and uses this experience to help clients make informed, strategic investment decisions in real estate. Don is passionate about build-to-rent, product and community planning, builder/developer M&A, and property and company valuations.
Jody Kahn
Jody Kahn
Senior Vice President of Research Surveys
Jody delivers timely and accurate insights on housing market trends at the metro, regional, and national levels. She combines statistics and commentary from JBREC’s independent surveys with data trends, forecasts, proprietary indices, feedback from consultants, and decades of housing experience to give clients insights that support business decisions.

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