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A wave of ‘Build for Rent’ communities coming to South Florida

Florida Weekly

Nov 3, 2023

Companies are looking to South Florida and other parts of the U.S. to cash in on the trend of “Build for Rent” housing

With growing demand expected for rentals, companies are looking to South Florida and other parts of the U.S. to cash in on the trend of “Build for Rent” housing — single-family homes developed in groups for the purpose of being rented out instead of sold.

A Phoenix, Ariz.-based commercial real estate brokerage that specializes in selling Build for Rent (BFR) communities, SVN | SFRhub Advisors is offering a 25-home portfolio in Charlotte County for $5.7 million, a 63-home portfolio in Fort Myers for $20.2 million, and a 72-home portfolio in Cape Coral for $15.1 million, among other BFR developments in Florida and the United States.

Developers such as Toll Brothers, Neal Communities, and ERC Homebuilders are all growing BFR portfolios as well.

“Build for Rent” can apply to a company that builds or manages a whole stand-alone community of single family houses or acquires houses on scattered lots.

The Marietta, Georgia-based FirstKey Homes acquires single-family homes for the purpose of renting them out, whether they are newly built or older homes. FirstKey offers rentals from Florida’s Southwest Coast to West Palm Beach, and other parts of the U.S. A sign on one of their company vehicles advertises “Pet Friendly” rentals.

“(Build for Rent) is definitely not a fad,” said Glenn Palmer, executive vice president at SVN International Corp. – First Coast Commercial in Jacksonville. “It’s a market sector that’s here to stay. And it’ll take business not just from single family home sales but from the multi-family market as well.”

After the federal lender Freddie Mac began backing loans for BFR companies over the last year, it helped clear the way for their development and garnered the interest of Wall Street banks, Mr. Palmer said.

SVN and Lotus Commercial Real Estate Advisors is working with builder Neal Communities on Mangrove Estates, the 63-home portfolio in Fort Myers slated to be complete in 2021. The projected $20 million community will offer three-bedroom plans of 1,531-square feet and four-bedroom plans of 1,812- to 2,064-square feet.

SVN estimates that the owner-operator of Mangrove Estates would charge an average monthly rent of $2,570 and make a net operating income of $1.26 million per year based on current market values.

It’s hard to say what market segment BFR communities will command across the U.S. in coming years, but The Urban Institute says growth in rental households will exceed that of homeowners by 4 million from 2010 to 2030.

According to SVN, demand for single-family home rentals is being driven by millennials who can’t afford the costs of buying a home because of factors such as unemployment, student debt, and economic uncertainty; and baby boomers looking for a “lock and leave, maintenance-free lifestyle.”

The pandemic may also encourage the trend as more people look to work at home and avoid crowded apartment buildings.

Florida’s tax “friendly” status compared to states such as New York also make it an attractive place for developers of BFR communities, which are usually managed by a third-party, similar to many multi-family housing units. Amenities such as smart home technology, pools, and other upgrades are often built-in to the rental price.

Middle to lower-priced homes work better with the BFR model, but not high cost housing where “land cost is so exorbitant, the cost of the homes is so high, you couldn’t really rent them effectively,” said Mr. Palmer. “(BFR) can work in lower, middle; we’re not sure they work in the luxury market.”

A developer based in Riverview, near Tampa, ERC Homebuilders is set to create BFR communities across several market segments.

“We are developing a combination of conventional construction, modular and manufactured housing communities,” wrote Gerald “Jerry” D. Ellenburg, chairman of ERC.
“We like the manufactured housing rental model since the resident can pay approximately 2/3 the cost per square foot as in conventional. And they develop and open for rent so much sooner. We just now contracted a parcel outside Tampa for 60 manufactured homes and that will develop and rent out very quickly.”

SVN touts BFR as attractive to invest in for several reasons, including that tenants stay longer compared to multifamily/ apartment rentals. In apartments the average stay is less than two years compared to about five to eight years among single-family home renters, says Mark Peterson, director of SVN’s Build for Rent Division.

“The stickiness we refer to it as, of the tenants in a rental home, is fundamentally longer,” he said.

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