Families searching for more space, in part as remote work options retain their hold on the workplace landscape, plus strong migration into the Southeast have helped fuel a robust single-family rental market, especially in Atlanta and other Georgia markets over the last several years.
More recently, young renters pairing up to share the growing burden of housing costs, as well as would-be home buyers putting off a purchase because of higher interest rates, have also gravitated toward single-family rentals, says Troy Reynolds, a multifamily advisor with NAI G2 Commercial Real Estate, who has added single-family rentals to his business focus.
Given the lack of housing supply in the Southeast, these conditions are likely to persist for the foreseeable future. As a result, a growing number of investors have been piling into the assets amid a multifamily investment market saturated with buyers and a consequent leap in prices over the past few years, he adds.
“We just don’t have enough housing to meet all the demand, and we continue to see a mass exodus from other states into the Southeast, and particularly into Georgia,” Reynolds states. “So, we’re seeing a lot of younger as well as newer investment groups coming into single-family rental space.”
Strong Underpinnings
Prior to the pandemic, people were already flocking to the region. From 2010 to 2020, Georgia’s population grew by more than 1 million, or 10.6 percent, which was 220 basis points above the average state population growth, according to the U.S. Census Bureau. The population in North Carolina and South Carolina grew by a similar percentage during that period, and in Florida, the population increased by nearly 15 percent.
Meanwhile, Atlanta ranked eighth among the 193 most undersupplied metro areas for housing in the country in 2021, behind only Miami in the Southeast, according to Housing Underproduction in the U.S. 2023, a report issued by Up For Growth, a Washington, D.C.-based non-profit focused on crafting policies and partnerships that achieve housing equity and create more homes.
Institutional investors have been some of the most active buyers in Georgia markets. In 2021, for example, these investors bought 43 percent of the homes in Atlanta, according to real estate research firm CoreLogic. But Reynolds is working primarily with a growing number of mid-level syndicators who are building single-family rental portfolios across various markets in the Southeast. Depending on their size and structure, syndications will buy anywhere from a dozen units to 150 or more.
While most acquire, fix up and operate the properties, others no sooner put the assets under contract than they begin executing an exit strategy, whether it is flipping a portion of the homes or all of them, Reynolds points out. The syndicators also tend to have more flexibility than institutional capital when it comes to neighborhood demographics and the home’s age, size and number of bedrooms and bathrooms.
“In many cases, these syndications are able to come in, find value and implement new plans,” Reynolds adds. “The institutional players are a lot more rigid in terms of what they are expected to buy and the returns they hope to achieve.”
Sales Pause
Similar to other real estate sectors, single-family investment sales have slowed due to higher interest rates. The surge in the cost of short-term debt has been especially daunting given the tendency for the syndicators to fund their purchases using bridge financing, Reynolds reports. The benchmark 30-day Secured Overnight Financing Rate (SOFR) is 5.3 percent today versus zero in March 2022.
A buyer who had lined up a 57-home portfolio in Columbus, Ga., for instance, delayed the purchase as it put expansion on hold while working through the refinancing of another portfolio in a different market, Reynolds reveals. In other cases, buyers are tapping more reasonably priced long-term fixed-rate financing from local credit unions and banks to buy single-family rentals that have already been improved.
“It has been hard to make SFR deals make sense right now because of the higher interest rates,” Reynolds explains. “But people want to find a way to get them done and are getting creative, which in some cases has meant owner financing.”
Higher interest rates and escalating construction costs have also slowed build-to-rent communities in Georgia, especially markets like Atlanta that have traditionally been sought out for large residential developments, he says.
Still, the overall single-family rental market in the Southeast, and especially in Georgia, remains resilient, Reynolds observes. Rents are growing even if at a more moderate pace after spiking in 2021 and 2022. What’s more, the lack of for-sale housing continues to support single-family home values in general, which is good news for investors.
“We’re not really seeing the drop in home prices in Georgia and throughout the Southeast that the experts were promising as we came into 2023,” he declares. “Interest rates have had an effect on the single-family rental market, but not to the degree that we thought they would.”
— By Joe Gose. This article was written in conjunction with NAI Global, a content partner of REBusinessOnline. For more articles from and news about NAI Global, click here.