Walker & Dunlop: Single-Family Rental and Build-for-Rent in High Demand
A number of factors are driving an increase in demand for single-family rental assets. Declines in home ownership rates, increasing demand/short supply for multifamily options and baby boomer renting preferences have made renting these single-family properties an increasingly popular choice. Meanwhile, COVID-19 spurred increases in teleworking that created a desire for additional space in the home and allowed more people to move to suburban locations — accelerating demand for single-family rental properties.
Seeing the growing demand and increasing rents in the single-family rental (SFR) and build-for-rent (BFR) sector, Walker & Dunlop has created a new team — Walker & Dunlop SFR & BFR Practice Group — to provide investors information on construction, bridge lending, permanent financing, equity structuring and property sales, for a market estimated at $3.4 trillion (compared to $3.5 trillion for the multifamily market).1
Popularity, high occupancy and increasing rent rates have drawn the attention of larger investors to SFR and BFR assets, according to Kris Mikkelsen, executive vice president of investment sales with Walker & Dunlop.
“Currently, larger investors make up less than 2 percent of the SFR market, which has been traditionally governed by individuals or small-scale parties. But that number will increase as investors recognize the opportunity,” Mikkelsen notes.
An SFR is usually a collection of homes for rent pooled together for investment purposes, but the homes may be spread out geographically or otherwise disconnected. They are often found in rural markets; these SFR properties can include single-family homes, two- to four-unit properties and townhomes.
BFR properties are a sub-segment of SFRs. BFRs are built to be operated as single-family rental investments and are often built and operated as a community. BFR homes currently make up between 5 and 10 percent of new homes, according to the U.S. Census Bureau, but this percentage is likely to grow as institutional investors seek to add these properties to their portfolios. Walker & Dunlop is currently tracking more than 15,000 BFR units, primarily in the southwestern and southeastern U.S.
Capital sources are also increasingly interested in this asset class, including banks, debt funds, and some life companies, as well as Fannie Mae and Freddie Mac. (The agencies treat BFR assets much like vertical multifamily apartment properties, aside from some underwriting variations.)
Walker & Dunlop’s SFR & BFR Practice Group team has closed and raised capital for more than $872 million in the SFR & BFR sector and has an active pipeline of $1.4 billion in this space. The team is working closely institutional clients, homebuilders, multifamily developers and individual investors to finance deals, advise on debt and equity options and broker investment sales transactions.
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¹ Magnify Capital