Single-family rental is a fairly new niche institutional real estate investment strategy that started with real estate managers, including Blackstone Inc. and Starwood Capital Group LLC, buying homes in foreclosure during and after the global financial crisis. The firms bundled the properties up and eventually spun them into real estate investment trusts that are today some of the largest landlords in the sector.
But it was only in the last few years that institutional investors began ramping up investment in the strategy in a big way.
In July 2021, real estate investment trust Tricon Residential Inc. created a $5 billion single-family home joint venture with the $204 billion Texas Teacher Retirement System, Austin, Pacific Life Insurance Co. and a third institution initially committing a combined $1.4 billion in equity. The joint venture plans to invest debt and equity to buy homes in the U.S. and rent them out.
At the end of 2021, the C$539 billion ($431.8 billion) Canada Pension Plan Investment Board, Toronto, linked up with real estate manager Greystar Real Estate Partners in a $840 million venture to build and acquire single-family home communities. And in May, the $40 billion Indiana Public Retirement System, Indianapolis, committed $30 million to real estate manager CenterSquare Investment Management for a dedicated single-family rental co-investment fund.
Aon PLC's real estate consulting subsidiary, Townsend Group LLC, said that $60 billion has been raised or committed for build-to-rent housing as of September 2021, according to a report to the $22.5 billion Los Angeles City Employees' Retirement System. Only 2.2% of single-family home rentals were owned by institutional operators in 2021, providing "significant room for further institutionalization," Townsend said in its report. In addition, single-family homes for rent REITs have seen more than 10% growth in new leases and more than 5% growth in renewals, Townsend said.
A growing number of alternative investment managers are also jumping on board. On May 16, for example, $127 billion private equity manager Partners Group Holding AG acquired a $1 billion portfolio of single-family rental homes in the U.S. made up of 2,528 recently built houses and more than 1,000 homes to be built across 17 states in the Sun Belt. Blackstone called rental housing one of its "favorite neighborhoods" for investments, according to statements made by Jonathan Gray, Blackstone's president and chief operating officer, during the firm's April 21 earnings call.
Blackstone has a $4.1 billion single-family rental portfolio and did not evict tenants for nonpayment of rent for two years during the pandemic, according to its website. Also, the Blackstone Real Estate Income Trust acquired single-family rental company Home Partners of America for $6 billion in June 2021.
Lenders also are getting into the action. In April, Second Avenue Group, which manages $2 billion in single-family rental properties in the southeastern and southwestern U.S., raised $250 million in equity and debt capital from private credit manager Monroe Capital LLC. In March, Second Avenue received $500 million from real estate manager Waterton, and $150 million from another real estate manager, BLG Capital. Second Avenue plans to invest up to $1 billion a year.
Rising interest rates, inflation and growth in rents are enticing investors into the sector, said Nancy Lashine, New York-based founder and managing partner of Park Madison Partners LLC, a boutique real asset private equity placement firm. Investors have an appetite for any kind of real estate such as single-family rentals in which there is rent growth and a supply-demand imbalance that offers good cash flow as well as an inflation hedge, she said.
"Single-family rentals is a very new space … with so much more demand than supply," Ms. Lashine said. The pandemic only increased demand for homes with more space, and people are willing to rent homes to get it, she added.
"There's a huge appetite for it (single-family rentals) ... a lot of capital is available" for both specialty managers and as part of diversified funds, Ms. Lashine said.