By Diana Mosher
August 30, 2023
View source version HERE
Developers, investors and architects weigh in on the rising trend.
As we put the pandemic and the Great Resignation behind us, some who moved away from the city core during the early stages of COVID-19 are realizing not only that it can be lonely living in the middle of nowhere, but also that job opportunities can be scarce.
Master-planned communities have been enjoying a resurgence because they are designed with lots of room to spread out, while also providing an ecosystem that supports the career interests of like-minded people and a network for job hunting. The classic choices include buying a house, townhouse or condo—or renting an apartment. Single-family rentals are now becoming part of the mix.
This emerging trend dovetails with the overall growing demand for build-to-rent housing. The $4.4 trillion sector’s fundamentals reveal stability while other sectors face an uncertain economic future. Data a midyear 2022 report from Berkadia shows that average rents have increased by $6 to $2,089 through April of this year. And according to an August 2023 Yardi Matrix report, the sector saw a record 14,858 units completed in 2022 and is on track to match that pace this year, with 6,600 units delivered through June.
A uniform look
Many cities, towns and neighborhoods evolve in an organic way over time. But there is also a long tradition in the U.S., dating back to the 16th century, of managing new development for both form and function. St. Augustine, Fla., is thought to be the first master-planned community in North America.
When the Spanish founded St. Augustine in 1565, they laid the town out following rules that the Spanish Crown issued to colonists in guiding development decisions. The document stated that buildings should have a uniform look for aesthetic reasons. It also mandated a central plaza/common area and even touched on zoning regulations for trades such as slaughterhouse and tanneries.
Today, the REITs that own and operate single-family rentals are creating thousands of new, build-to-rent houses. Shared amenities, such as swimming pools and pet parks, thoughtfully designed curb appeal, while spacious interiors with stylish finishes are making the option popular with those seeking a change from high-rise, urban living. Industry watchers expect to see more self-contained build-to-rent subdivisions pop up within master-planned communities.
“Six, seven, eight years ago, when the build-for-rent industry was starting to gain traction, master-planned communities were a little hesitant to accommodate the concept because they didn’t have a long track record of performance,” said Todd LaRue, managing director, RCLCO.
Developers were also concerned about potential conflicts with their single-family owners who might be upset by having single-family renters within the community.
That attitude has shifted dramatically. The build-to-rent industry has evolved and today there are numerous proof-of-concept examples, plus a lot of different flavors of product in terms of density and sizes, according to LaRue.
“I think most master-planned communities are considering including them as part of their development program. It brings in a consumer that might not otherwise have been attracted. It often serves as an incubator for buyers just moving to the market or saving for a down payment,” added LaRue. Also, for investors and developers, it provides another transaction.
Land that might otherwise sit vacant for several more years can be sold to a build-for-rent developer, accelerating revenues.
Build-to-rent neighborhoods within master-planned communities rent for a higher dollar amount than similar rental neighborhoods located outside the gates, according to Brad Hunter, president of Hunter Housing Economics. In particular, the cottage home approach, which is also referred to as “horizontal apartments,” is gaining momentum and share within the sector.
“Driven by compelling demographics and a chronic under-building of homes that are appropriate for first-time homebuyers through this whole cycle, $10 billion in equity—plus $20 to $40 billion in debt—is flowing into build-to-rent right now. There is a clear need for more of this type of development, and that has recently attracted the attention of institutional money,” Hunter stated in a column he wrote for Forbes.
For example, a collection of 282 cottage homes for rent, developed by Capstone Communities, offers a gracious lifestyle within Nexton, a master-planned project by Newland Communities, near Charleston, S.C. The 5,000-acre Nexton was named Master-Planned Community of the Year in 2021 by the National Association of Homebuilder.
“The Capstone development offers single-family rental homes in a suburban environment with amenities and services typically found in more urban settings, all of which are highly desirable right now,” said Brent Gibadlo, vice president of operations with Nexton.
In fact, Newland Communities is considering several more build-to-rent properties within Nexton as well as across their national footprint, which comprises 11 states. Some will be designed for a particular demographic, such as 55+ renters, young families and even second-home renters. The latter are typically grandparents who want to be close to their families during certain parts of the year. According to Hunter, segmentation is going to become necessary as more rental communities emerge as part of this accelerating trend.
Diverse housing product
The best master-planned communities sell a brand and they stand for something, according to Nate Cherry, regional leader for Gensler. This might be a focus on local businesses, an active lifestyle, the ability to educate and learn or the opportunity for people to come together through event programming with a strong wellness component.
“We want our pool, we want the convenience of a two- or three-car garage. At the same time, Americans want the stimulation of being together and sharing new ideas and being around innovative people and arts and culture and that sort of thing,” said Cherry. “So, there’s always this push and pull about to what degree am I part of community and how connected do I want to be?”
People moving to the suburbs no longer want the hassles of living in the city, but they fear they may not be as stimulated as they were in a high-density environment. “That’s often the Holy Grail,” Cherry mentioned. The master-planned communities that (find a balance) and do that really well, those are the ones that are growing fast.
According to Cherry, building a diverse housing mix is key, and rental properties are an important part of that blend. “It has to do with why you’re building housing—which is to be close to an employer.” Because of the employer, there’s a need for a greater diversity of housing. Employees come from different skill sets and different price points and different earning capabilities.
Building self-contained neighborhoods
Howard Hughes owns, manages and develops commercial, residential and mixed-use real estate throughout the U.S., including a portfolio of master-planned communities. The company is headquartered in The Woodlands, which is also one of its three master-planned communities in the greater Houston area. The Woodlands, founded in 1974, boasts 120,000 residents and around 68,000 jobs within its borders. Encompassing 28,000 acres, it is more than twice the size of Manhattan.
Last year, on the west side of Houston, Howard Hughes broke ground on Wingspan, the firm’s first build-to-rent product in the master-planned community of Bridgeland, which is a little over 11,000 acres. Same as the multifamily options, the 263-home build-to-rent component is being developed, leased and overseen by Howard Hughes with a third-party operator.
“Our thought process on why we launched that first product at Bridgeland is because it allows a diversified resident to come into our community,” said John Saxon, chief of staff for The Howard Hughes Corp. “It’s a halfway point between single-family for sale and multifamily for rent.”
Bridgeland has 15,000 residents today, and that is slated to grow to 70,000 at full buildout. While it is decades behind The Woodlands, it’s not a replication, according to Saxon, but following in its footsteps in terms of the lifecycle of a successful master-planned community.
Howard Hughes takes a very long-term approach—50 years, as opposed to other MPC developers, who can be in and out of a fully developed community in five to 10 years.
“At Bridgeland, we’re getting to that tipping point where it makes sense to offer this build-to-rent product. We’re expecting a pretty strong lease-up once we get it delivered in 2024,” said Saxon. “Let’s say that somebody wants to be in a home, but they don’t have a down payment yet. We’ve been obviously seeing home prices rising over the years. This allows them to rent a three-bedroom home with a garage and a backyard. It allows them to have the best of both worlds.”
That includes walkability, restaurants and a seven-minute commute to highly amenitized Class A office space. “If you have a seven-minute commute, you’re going to want to come back to the office. And that’s exactly what we’re seeing today,” Saxon concluded.
Master-planned communities are not competing with city life. It’s a walkable alternative, according to Robert Acuna-Pilgrim, principal & director of planning at TBG, a Texas-based design firm with expertise in landscape architecture, urban planning and master-planned communities. “We’re focused on connecting to nature as much as possible.” TBG’s work with Hillwood on Harvest, a master-planned development in Argyle, Texas, serves an amenity-rich development that boasts a farm. “We really lean into the assets that the land provides,” Acuna-Pilgrim continued.
“Including a build-to-rent component aligns with our values of creating lifecycle housing,” added Acuna-Pilgrim. “Build-to-rent homes are suitable for someone who’s downsizing, maybe someone who has become single after being part of a couple, whether that’s through a divorce or death. Sometimes it’s suitable for the family who is building within that community and their home won’t be ready for 12 months and they need a place to live so they can get the kids integrated into the school.”
Harvest has embraced the build-to-rent concept. Leased by BB Living, one of the first to offer build-to-rent homes in the Dallas-Fort Worth area, the community has attached and detached houses with three or four bedrooms and two car garages.
“Typically, the build-to-rent homes are a little smaller (than for sale) with more compact lots. They usually have smaller outdoor space. This aligns with being in an amenity-rich community with lots of open space, walking trails and parks. They marry up well with that versus putting them behind the gate with amenities that are only for the renters.”
Developers are discovering that the more housing options there are in the early planning stages, the more vibrant and desirable the community will be—and the quicker they’ll be able to move on to building the retail component, the offices and all the things that make a truly successful master-planned community.
Click here to return to the homepage