Single-Family RentalBuild-to-Rent

Single-Family Rental Industry Act 2: Build-to-Rent Taking Center Stage

Don Walker Headshot
Rick Palacios Jr photo

Don Walker

Rick Palacios Jr

May 21, 2018

The single-family rental (SFR) space has quickly quieted skeptics and scaled into an institutional asset class. Build-to-rent (BTR) is now playing an emerging role in the industry’s evolution. In less than a decade, Progress Residential, Tricon American Homes, Front Yard Residential, American Homes 4 Rent, and Invitation Homes have all solidified proof of concept for the SFR industry. Several of these industry leaders are now targeting BTR as part of their growth initiatives. However, a new group of operators is pursuing BTR as a standalone business model.

Leading the BTR charge are NexMetro, AHV Communities, BB Living, Christopher Todd Communities, and Camillo Homes. There’s no one-size-fits-all model, which we discovered after visiting and/or analyzing 50 open and planned BTR communities consisting of over 6,000 homes.

BTR operators employ varying strategies on amenities and services, ranging from full-fledged apartment-like offerings to very minimal, including:

  • Full-service BTR model: On-site leasing experts supported by up to three model units. Services include property management, 24-hour maintenance, lawn service, and trash valet. Amenities can include gated entrances, private streets, pools, and parks.

  • Minimal BTR model: Akin to traditional single-family detached neighborhood with virtually no amenities or on-site services.

Each of these BTR product niches and service levels have proven successful by multiple measures:

  • Quick lease-up periods, ranging from 10 to 30+ units per month (average of 14)

  • 91% to 100% stabilized occupancy rates (average of 96%)

  • Significant rent premiums, ranging from 15% to 30% above equivalent-sized apartments or “one-off” SFR homes located in traditional for-sale neighborhoods

  • : Akin to traditional single-family detached neighborhood with virtually no amenities or on-site services.

The locations of BTR communities will also surprise pundits who believe BTR works only in tertiary submarkets rated C/D or F. Consider the following:

  • 70% of the BTR communities we analyzed lie in A or B submarkets. What we found is that these renters want to live in the same general locations as those looking to buy a home. They want convenience to shopping, safe neighborhoods, proximity to job centers, and good schools.

  • BTR communities are adjacent to for-sale communities. The economics of BTR are allowing rental operators to match or beat for-sale home builders when it comes to many land deals.

The locations of the open BTR communities (orange pins) and the active for-sale neighborhoods (bright green dots) demonstrate these housing solutions are vying for the same locations, most of which we rate as A or B submarkets* in the Phoenix MSA.

To be clear, BTR does not work in every market and in every situation. Understanding local demographics, proximity to retail and good schools, walk scores, and market feasibility all remain essential.

Our BTR community visits also found product and design elements critical, both from an operator cost savings and consumer preference perspective:

  • Focus on durable, low-maintenance products throughout the home. Most of the projects we toured included laminate or tile faux wood floors, granite kitchen countertops, solid-surface bath counters, and fiberglass tub/showers.

  • Make small spaces feel large and private. 9+ foot ceilings created a sense of openness in many of the BTR communities we toured. Private yards are also key, though small enough to keep rents affordable and maintenance costs manageable. Residents don’t want anyone living above them, as if often the case for most apartment renters.
 
The table below shows interior amenities by frequency of inclusion in the BTR communities we analyzed:

The interior photos of one of NexMetro’s open BTR communities highlights the quality of materials used in their homes. Including granite counters, laminate wood flooring, and stainless steel appliances appeals to their residents while providing durability and lower cost of maintenance to the owner.

In addition to the interior unit amenities, we also analyzed BTR community amenities. Pools, gated entrances, walking trails, and 24/7 on-site maintenance were most common. Economics rarely support clubhouses/fitness centers, and knowing your target renter profile’s affordability thresholds is critical when deciding which amenities to offer.

The BTR segment is growing quickly, and we’re already tracking over 50 active and planned communities around the country. We’ve helped multiple BTR operators with:

  • Product and community amenity recommendations

  • Determining appropriate base rent rates, premiums, absorption, and stabilized occupancy levels

We are proud to have been involved with the SFR industry since 2010, helping on portfolio acquisitions, IPOs, and now BTR communities. When we conduct Burns Plus Feasibility studies, whether for rent or for sale, we are careful to survey the likely occupants, recommend the appropriate specification level, and often use photos from DesignLens™ or neighboring communities. If you would like additional help separating fact from fiction in the BTR space, please reach out to us.

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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.
Rick Palacios Jr photo
Rick Palacios Jr
Managing Principal, Director of Research
Rick oversees and guides JBREC’s research platform while coaching his team daily.

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