Build-to-rent gains traction over buying homes one at a time

The single-family rental market is evolving away from companies competing with families to buy homes one at a time and toward building tracts of homes to be rented.

According to data released in March by the National Rental Home Council and John Burns Real Estate Consulting, homes built to rent accounted for 26% single-family rental homes in the fourth quarter of 2021, compared with 3% in the third quarter of 2019, when they first started tracking the numbers. Purchases of existing individual homes by single-family rental home landlords during that time decreased to 57% from 81%.

Pretium Partners LLC, which has $40 billion in assets under management, has been expanding its build-to-rent business. Pretium has a $1 billion joint venture with real estate operator and developer Crescent Communities. In March, the venture closed on land to build its third single-family rental community, Harmon Legacy Trail, which will have 78 rental homes in Nokomis, Fla. Also in March, Pretium and homebuilder Onyx & East started construction on a 24-home build-to-rent community in Tampa, Fla. as part of a $600 million joint venture.

"Build-to-rent is also an important part of Pretium's growth strategy and contributes to closing the gap in housing supply and demand — offering modern, professionally managed homes in attractive markets that may not have otherwise been accessible to our residents," said Josh Pristaw, New York-based senior managing director and co-head of real estate at Pretium Partners.

Benjamin Haefele, Los Angeles-based managing partner of real estate firm Mandrake Capital Partners LLC, calls the build-to-rent strategy, which his firm focuses on, single-family home for rent 2.0.

"In our minds, we draw bright line of 1.0, which was a one-time thing related to the housing crash" in the wake of the global financial crisis, Mr. Haefele said. In Mandrake's version of SFR 2.0, the firm develops a housing community of more than 100 homes that have amenities such as clubhouses and pools as well as an on-site leasing office. Because all the rental homes are at one location with identical fixtures and appliances, upkeep is more efficient, he said.

Jeffrey B. Reder, a Newport Beach, Calif-based managing director, private real estate at real estate manager CenterSquare Investment Management, said the latest version of the single-family for rent strategy arose from another fallout of the global financial crisis — a chronic undersupply of housing, driving up the price of affordable housing. At the same time, millennials entered the job market right after the recession with large amounts of student debt. When they needed more space, they discovered that only about 10% of apartments have three bedrooms, he said.

Single-family rentals are a "great opportunity to create quality housing that would bridge the gap," Mr. Reder said.

They offer direct access to garages and backyards that are lacking in multifamily properties while also providing professional management, Mr. Reder said. CenterSquare invests in build-to-rent, partnering with developers and buying up large portions of housing developments to rent them out.

Still, CenterSquare executives are cognizant of the potential headline risk.

"Communities don't want big money investors scooping up all these homes and renting them out and competing with the American dream of homeownership," Mr. Reder said. "We are creating new purpose-built rental communities and trying to solve the housing crisis."