Institutional money managers are revisiting a successful strategy from the last financial crisis, investing in single-family homes to rent. But this time, there's a twist.
Rather than mostly buying homes out of foreclosure, managers are investing in construction of new housing developments in addition to buying individual homes for inclusion in an all-rental portfolio.
After the global financial crisis, Blackstone Group Inc. and other real estate managers bought homes in foreclosure and later packaged them in real estate investment trusts. But now, managers say they expect the sector to mature into an income-generating asset class strategy similar to apartments.
These managers say that the single-family home rental market is evolving into an institutional investment much as multifamily did more than two decades ago. Institutional ownership remains a very small part of the overall single-family home market, with 200,000 homes of the more than 90 million single-family units in the U.S., according to data from the National Rental Home Council.
Many investors already have exposure to single-family home rentals in real estate and credit funds. A number of large managers including Blackstone, KKR & Co. Inc. and Ares Management Corp. are already active in the sector.
In October, for example, real estate manager Pretium Partners LLC and Ares Management announced a $2.4 billion investment to acquire and take private Front Yard Residential Corp., the smallest of three REITs specializing in single-family homes for rent. Ares is investing capital from its real estate equity and alternative credit strategies funds.
"I spent 20-plus years in multifamily and watched evolution of professionalism, the evolution of scale and evolution of value" in multifamily, said Dana Hamilton, Pretium's New York-based senior managing director and head of real estate. "Coming into this space (single-family homes for rent), I'm seeing it again but in high speed."