By Sudha Reddy, Haven Realty Capital
Single-family rentals have taken off in various areas across the country. But they’re boiling in the Southeast.
The strength in the Southeast shouldn’t be a surprise as the region has enjoyed substantial employment and population growth over the past decade — well before COVID-19 hit last year. In 2018, the Southeast led other regions in net inflow, gaining around 959,000 new residents from different areas of the United States and around the globe, according to the U.S. Census Bureau.
Sudha Reddy, Haven Realty Capital
This strong growth showed up in cities and states throughout the region. Among states, Florida led the way, with 566,476 people moving from another state. Of the cities with a population of 50,000 or more, the Southeast had 10 of the top 15 fastest-growing large U.S. cities between 2010 and 2020, according to the U.S. Census Bureau.
While the region was flourishing before COVID-19, the pandemic accelerated its population gains and spotlighted them. This migration has created a fertile climate for single-family rental builders and investors.
Despite the intense interest, investors have been able to find many great opportunities in the region over the past year with even more properties coming in the pipeline.
Moving South
With the flexibility to work wherever they wanted during the pandemic, many Americans decided to go South-bound. As a result, South Carolina, North Carolina, Tennessee, Alabama, Florida and Arkansas were among the top 10 states for inbound migrations in 2020, according to the 44th Annual National Migration Study from United Van Lines.
In addition to jobs, affordability and the search for more space have also drawn people to the Southeast. Of course, the moderate weather shouldn’t be discounted as a significant factor either. Many individuals moving to the area aren’t interested in or can’t afford to own a home. Instead, they want the opportunity to rent, and the rise of single-family rentals gives them more rental options.
As jobs and people have come into the region, so have institutional single-family rental investors and builders drawn to the markets by their affordability. They see a great opportunity in the Southeast because the states are attracting the right types of employment in growing sectors. As the single-family rental industry matures, expect investors to pursue more secondary markets. There is a shortage of rentals in these Southeastern markets, and opportunities should increase in these places as developers branch outside of the region’s top markets.
While single-family rentals are flourishing across the country, the Southeast is the epicenter of activity, with the possible exception of Phoenix and Las Vegas. According to Arbor, 22 of the top 25 metros areas for the search “homes for rent” in Google were in the Southeast.
This also supports research from Zonda, which recently reported that the country’s “smile” states — or those in the Southeast, Southwest and along the coasts — are seeing the largest amount of build-for-rent development.
Some regions where the build-to-rent sector (BTR) is only just now starting to take off include Charlotte, Raleigh-Durham and Charleston.
Very few markets have single-family rentals hotter than Atlanta, though. The city’s year-over-year rent growth of 9.1 percent in April places it as one of the national leaders, according to CoreLogic. It sits only behind Phoenix, Tucson and Las Vegas.
Other Southeastern hubs such as Charlotte (a 7.6 percent increase in April) and Miami (4.5 percent) were among the national leaders. Places like Tampa, Jacksonville and Nashville have also been strong performers throughout the pandemic.
BTR Evolution
Several operators are playing a role in developing and/or acquiring communities of rental homes across the country with a primary focus on key Southwest and Southeast suburbs where population and job growth continue to be robust.
These BTR projects, also known as dedicated rental communities, operate similarly to multifamily assets and qualify for attractive multifamily financing when stabilized. BTRs also allow investors access to the incredibly strong renter profile that comes with rental houses. BTRs solve some of the key challenges inherent with the scattered-site business model, and as a result it is expected that institutional investment in the BTR space will grow exponentially in the near term.
Last fall, Haven Realty Capital partnered with an affiliate of Walton Street Capital to acquire six rental communities in the greater Atlanta metro area from builder and developer ResiBuilt Homes for $133.7 million. The portfolio of 537 single-family rental homes in various stages of construction average 2,200 square feet and consist of three-, four- and five-bedroom floor plans, large yards and two-car garages.
The portfolio, which was completely built out at the time of this writing, was 95 percent leased, further illustrating the strong demand for BTR communities in Atlanta.
Sudha Reddy is managing principal with Haven Realty Capital, which currently owns 18 communities with another $250 million in the pipeline of projects in Southeastern states, including the firm’s entry into Florida. In the next six to 12 months, Haven Realty Capital expects to reach $1 billion in assets under management.