What is Build to Rent (BTR)?
Owning a home is a traditional component of the American Dream. But many Americans struggle to achieve that dream. Enter build-to-rent (BTR): large-scale community developments consisting of single-family homes built specifically as long-term rentals.
Why BTR is booming
The BTR phenomenon may be the first true transformational change to the single-family home market in decades. BTR reimagines the model of single-family residential living from a traditional, individually-owned home to a long-term rental home model. BTR homes are in professionally managed communities that offer significant amenities. A fairly new trend in the residential real estate community, BTR started in Arizona in the early 2010s and has flourished from coast to coast. Driven by increasingly high interest rates, uncertain economic conditions and the lack of generously sized single-family lots in attractive areas, BTR makes the American Dream possible for millions.
Who lives in BTR multifamily developments?
Over the past decade, there has been a clear shift away from home ownership into renting among older and higher-income households (ages 35-64). In fact, total renter households increased by 4.1 million between 2010 to 2021.
Millennials (25 to 40 years old) now make up the largest group of consumers in the U.S. at 72.1 million people. There are only slightly fewer Baby Boomers (57 to 75 years old) at 71.6 million. Baby Boomers are selling their large homes to reduce costs and maintenance, and empty nesters are moving closer to their Millennial children and grandchildren. The data also shows that college students, pet owners and seniors occupy new BTR spaces.
What effect has the pandemic had on rentals?
Apartmentdata.com analysis shows the urban core experienced occupancy decreases as high as 25% (Austin) while outer metro corridors saw record-breaking growth. With widespread adoption of video conferencing and more agile work models, the need for space and privacy has increased.
What is ApartmentData.com focusing on?
The golden rule of real estate: location, location, location! According to Apartmentdata.com, which currently tracks 19,000 BTR homes in 12 metros, the average size of a BTR community is 160 units. The largest BTR community is in Houston, with 809 units. Some other noteworthy facts include:
- 61% of BTR’s are located in the suburbs. Land is king!
- School districts and land density influence location.
- Online searches for “Homes for Rent” tripled in 2021 compared to 2020 (Rentcafe.com)
What is the investment and financing community focusing on?
Investors
Investor response has been favorable with fast lease-ups, longer lease terms and strong rent growth. Per-unit pricing per square foot of BTR properties is consistent with Class A conventional apartments.
- Phoenix has the largest inventory of existing projects with a healthy development pipeline and will likely record the greatest transaction activity.
- Dallas/Fort Worth and Austin have the strongest BTR development pipelines and as these projects deliver the sales activity should be robust.
Financing
Financing for single-family BTR is more attractive than portfolios of traditional single-family rentals:
- Debt Financing (Acquisitions) for BTRs on a single land parcel are often treated similarly to traditional apartment properties by Fannie Mae, Freddie Mac, FHA, Life Companies and bank lenders.
- Debt Financing (Construction) – Construction lenders have become comfortable with this asset class especially after seeing the lease velocity.
- Equity Financing – There has been a proliferation of institutional capital coming into this space as they have educated themselves on the asset class and are currently partnering with developers that can deliver a pipeline.
- Private-Equity & Partnerships – This is a primary funding mechanism for BTR operators. P. Morgan formed a $625 million venture with American Homes 4 Rent, while the Carlyle Group has teamed with Lafayette Real Estate.
- Home builders are partnering with operators: Taylor Morrison with Christopher Todd Communities and Toll Brothers with BB Living.
“The outlook is outstanding for this new asset class. Today’s renters have outgrown apartment living. Higher incomes and a difficult buyer’s market mean renting is still the best option for many people. BTR multifamily communities will continue to be concentrated in high-growth parts of the country that have thriving suburbs. With a robust investor appetite for these properties, we see the BTR trend staying hot – and filling a void in the current rental housing market. This trend is here to stay, and we can’t wait to see where it takes the rental market!”
Cindi Reed, ApartmentData.com
How ApartmentData.com’s Tools Help Inform Your Property Search
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