One theme stressed in the Investment and Single-Family Rental Lab on Monday at the 13th Annual Five Star Conference and Expo is that the single-family rental market is not a niche—it is an asset class.
And it is an asset class that is evolving, according to Lab Host Greg Rand, CEO of OwnAmerica. Rand’s portion of the lab discussed the “Third Wave” of single-family rentals, which is expected to be even more strategic, more lucrative, and include more participants for an asset class that has been around since the 18th century but seen some unprecedented innovations in the last decade.
“I think the industry is going to continue to mature and evolve,” said Kevin Ortner, CEO of Renters Warehouse and a speaker in the lab. “What I think we’re going through now in the SFR space is what the apartment and multifamily world went through in the late ‘80s. Before the late ‘80s, apartment buildings were owned by individual owners. They weren’t owned by institutions and REITs. The opportunity presented itself in the late ‘80s, and multifamily was determined to be a legitimate asset class. I think we’re seeing that now in the SFR space. We’re going to see the industry mature, and we’re going to see larger national players and more sophisticated regional players in the space but just more tools and technology to deliver that consistency that we want.”
The large funds bought Class A and B and C properties and are culling through and getting rid of B and C properties because they want to operate A properties, according to Lab Director Tim Herriage, CEO of 2020 REI Companies.
“(With Class A properties), vacancy rates are less, maintenance costs are less, turnover is less. . .it’s just like an A-Class multifamily. What I’m seeing in the market is that some of the smaller, mid-cap funds and partnerships are buying up some of the Bs and the Cs, and so the little guys, for example, over here in Dallas are going out to Tyler. Because you can buy even a Class A out there and get a 9 or a 10 cap. We’re already seeing cap rate compression in single-family rentals, and that’s probably the thing that confuses the market the most right now. You see a portfolio of Class A properties trade at an 8 cap, and then the next person puts out a portfolio of half As and Bs at and 8 cap, but then trade at that.”
Ortner believes that the SFR space is going to grow, and more opportunities within that space are going to present themselves to investors. The homeownership rate, which is currently at a five-decade low even though the market is hot and people are buying homes, indicates that “people are buying more than one house. We’re seeing ordinary mom and pop investors that live in a home but then decide they want to get into this and they buy one or two more houses.”
In addition, Ortner said the country is shifting toward becoming a “renter nation” with the growing number of people renting single-family homes (currently about 13 million and expected to increase by another three and a half million by 2020).
Speakers at the lab included Herriage, Rand, Ortner, Michael Calhoun of RentMoji, Wally Charnoff of RentRange, James Easley of Truly Noble Services, Mike Hayward of Auction Operations, Xome, John Helmick of Gorilla Capital, Keith Hemmer of Alacrity Services, Alex Hemani of Alna Properties, Glen Mather of NuView IRA, Sommer Myers of First Team Real Estate, Shea Pallante of Civic Financial Services, Jeff Pintar of Pintar Investment Company, Keith Ramsden of Main Street Renewal, Randy Robertson of Blackrock, Jeremy Sicklick of HouseCanary, D’Arcy Young of Residential Recovery Partners, and Nathan Vannatter of ASONS.
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