NAREE2021: The pandemic “poured gasoline” over a hot purpose-built rental home market

“It’s coming.”

The premonition was uttered by Todd Wood, CEO of Christopher Todd Communities, at the National Association of Real Estate Editors 2021 Conference Wednesday.

On the horizon, he predicts, is a swell of single-family rental development that will take shape primarily in markets throughout the Sunbelt, from Arizona to Texas to North Carolina to Florida.

“Five years ago, we started building this hybrid product [in Phoenix]. We were a very small percentage of the multifamily,” he said. “Today, five years later, 30% of all multifamily being built [in the city] is this single-story rental community (SRC) product.”

The privately-held company has completed or has in the pipeline more than 2,500 Christopher Todd-branded homes in Arizona and other states, including Florida and Texas. Its first Orlando-area community is being planned to include 208 cottage-style build-to-rent units on the corner of Narcoossee and Jack Brack roads in Osceola County.

Laura Kinsler, an editor at GrowthSpotter, moderated the panel, which discussed investor interest in building homes for rent, as well as the capital available to support its development and the different kinds of demographics buying into the available home rental supply.

At the conference, panelist Todd LaRue, managing director RCLCO, said purpose-built rental homes make up about 10% of the nation’s housing supply. On average, from 2008 to 2020, 29,000 BTR homes were built annually, he said, adding that number will likely double over the next five years.

“There’s a long runway for this industry to grow,” LaRue said.

Panelists said the trend has become an attractive asset class for institutional investors, as well as good living options for young families or single-Americans looking for more space and less upkeeping responsibilities.

High housing prices and steep down payment requirements are also keeping people from buying homes.

The pandemic accelerated this trend, Quinn Residences CEO Richard Ross said on the panel. The build-to-rent company was formed right before COVID-19 entered the U.S. and subsequently heightened the public’s desire to live in more spacious units.

“A couple with two kids wants to get out of that apartment, have a yard, have a garage, those were two big selling points,’ he said. “COVID poured gasoline on that, so we just closed our capital raise at $900 million, nearly four times what we set up to do and that’s indicative of the opportunity for investment.”

Rents at Quinn’s starter homes range from $1,600 to $2,500 for a 1,750-square-foot to 2,500-square-foot home.

“That rent threshold is still below the total cost of ownership for a for-sale home,” LaRue said at the conference. “It’s still more of a lower-cost alternative to owning.”

According to RCLCO data, there is about 22 million single-family rentals in the U.S., representing over a third of all rental home supply. Currently, for-sale conversions still represent a majority of that supply.

RCLCO projects there will be demand for 2.5 million new single-family rental units over the next decade. New-build rental communities will account for about 709,000 homes, according to the data. Some of the two largest single-family rental real estate investment trusts include American Homes 4 Rent and Invitation Homes.

New development still faces some hurdles, like increasing competition for land grabs and increasing construction costs. Also, proposed single-family rental and build-for-rent communities may not always fit into the mold of old zoning ordinances.

“It’s a real head-scratcher,” Wood said. “[Cities and counties] just don’t know where it belongs. And a lot of them don’t have the planning and zoning ordinances in place for our type of product at this moment.”

Also chewed over at the conference was whether the idea of homeownership is still prevalent in the minds of Americans.

In a previous panel, Alex Kamkar Bold Fox Development said “build for rent has got to be the most un-American anti-American investment in the last 30 years. It is literally taking home building supply offline for single families at the benefit of Wall Street and big capitalism.”

He clarified he’s not against renting as opposed to homeownership, he said “what I’m trying to say is the American family deserves opportunities to go buy single-family houses...If someone wants to rent forever let them live rent forever, I have no problem with that, but there are not enough opportunities.”

Wood with Christopher Todd Communities said “cities are realizing that diversity of product is really attractive to employers coming to the community.

“The American dream really is to own, but until an individual gets to that point in their life, they need shelter over their head,” he said.

The company specializes in creating build-to-rent, gated communities and partners with Taylor Morrison Homes to build the product. Once the communities are stabilized Christopher Todd Communities exits the asset.

“When one of our assets are transitioned and it’s gone to a new owner, it stays Christopher Todd, he said. ”We have a stringent set of brand standards they must meet and so that new owner continues with a brand.”

He compares the brand to hotel flags.

“We want it to be the Marriott of multifamily,” Wood said.

Have a tip about Central Florida development? Contact me at arabines@GrowthSpotter.com or (407) 491-3357, or tweet me at @amanda_rabines. Follow GrowthSpotter on Facebook, Twitter and LinkedIn.