April 15, 2024
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ARK Homes for Rent’s CEO on what’s fueling the SFR market in the Sun Belt and the company’s business model.
The need for more housing options and flexibility has been driving the SFR sector over the past few years. In the Sun Belt, where most growth occurred and competition is fierce, balancing between innovation, adaptability and high costs—while also ensuring housing quality and minding residents’ needs 24/7—has been key for SFR managers.
For ARK Homes for Rent, a vertically integrated company that acquires, finances and manages SFR-BTR properties, resident wellness is at the forefront of its business model. Today, ARK is active in seven states and managing 13 properties, so we asked CEO John Isakson to talk about the challenges he sees in the market and what it takes to elevate the experience for SFR residents.
How would you describe the current state of the SFR sector in the Sun Belt region?
Isakson: The SFR-BTR sector is a nascent and evolving industry and, thankfully, the sector is healthy. We are a bit insulated from some of the challenges other parts of the real estate market are facing, especially compared to multifamily, as we have solid demand in an environment where there isn’t too much oversupply.
Additionally, we know there is a real deficit in terms of housing supply across the country, and especially in the Sun Belt building new SFR and BTR communities still makes a lot of sense. For example, in Florida, thousands of new people are coming every week, creating a huge lack of supply, and we are finding solid support, both from the community and at the state level, to create new single-family homes for rent in neighborhoods across the state.
Why do you think SFR properties are so popular today across the Sun Belt? What’s shaping the sector?
Isakson: The current state of the economy, high interest rates and a continued desire for flexibility and mobility are some of the key factors that have increased the number of would-be buyers choosing to rent their homes. SFR-BTR properties are particularly popular among renters looking to start a family, who want a little yard or a little less density.
Our average rents for an ARK home in the Sun Belt are in the $2,500 to $3,000 range, meaning these are market-rate renters who could be owners, but they’re choosing to rent, either because of lifestyle, or because they want to try before they buy. Many of our residents are not yet ready to commit to buying a home but they want something that looks like and feels like a home. Maybe they are looking for a more suburban environment or want to find a strong school district.
One trend that continues to impact our sector is the continuation of remote work. Our renters are looking for flexibility and they also need enough space for a home office or perhaps they want to take advantage of a sought-after neighborhood amenity such as a pool, outdoor barbecue spot, fitness center, playground, clubhouse, or dog park.
Tell us more about your management portfolio. Can you share any figures about demand at your properties?
Isakson: We have thousands of single-family rental properties under management across the Southeast in the Carolinas, Georgia, Florida, Tennessee and Texas. We receive between eight to 10 qualified applicants for every unit that we have available and nearly 70 percent of our tenants renew after their one-year lease expires—a much higher rate than the average industry apartment renewal of under 60 percent.
Today, we have a footprint in the core Southeastern cities of Atlanta; Charleston, S.C.; Charlotte, N.C.; Jacksonville, Fla.; Nashville, Tenn.; Orlando, Fla.; Raleigh, N.C., and Tampa, Fla., and we are in secondary markets like Wilmington, Greensboro, Winston Salem, N.C.; Savannah, Ga.; Palm Beach, Fort Myers, Fla.; Myrtle Beach, Greenville, Spartanburg, Columbia, Charleston, S.C.
ARK Homes For Rent has a particular focus on health and wellness throughout its communities. How does this approach help you stand out?
Isakson: Unlike other single-family rental operators, when it comes to wellness, our portfolio focuses on new homes with builder home warranties from industry-leading home builders and, of course, the amenities we provide, such as fitness centers, playgrounds and pools, promote exercise and connection. Our communities also feature homes with backyards with easy access to fresh air and nature.
How else are you supporting residents’ well-being?
Isakson: Beyond our beautiful new homes and community-building amenities, we are proud to provide tenants with access to ARK Living, a best-in-class preventive health and wellness platform created by our Founder & Chairman Jordan Kavana to foster overall health and well-being. Tenants have exclusive access to the platform through our new proprietary ARK Homes For Rent app that goes beyond traditional property management to provide easy access to telehealth and therapy, on-demand fitness classes and education, nutrition resources and exclusive deals on wellness products. The app also allows tenants to connect with their neighbors via community events and more.
Can you please elaborate on how the app contributes to your brand and touch on its other features?
Isakson: Preventive health is something that tends to be marketed and reserved for the one percent and Jordan is determined to change that paradigm. The ARK Living platform was developed to focus on key health disciplines including nutrition, sleep, mental health and movement diagnostics. When you rent with us, you get access to education on these topics. You can take a la carte classes, find a nutritionist, sleep specialist, or even a geneticist who can offer personalized information or a home visit.
Our team has seamlessly integrated all the companies and specialists to bring their expertise and knowledge right into our renter’s home. Not only are our renters getting a great new home to love, but we are also putting the power of preventive health and longevity into their hands.
With looming challenges on the horizon, mainly due to economic factors, how does ARK ensure that its properties remain attractive and competitive in the SFR scene?
Isakson: Interest rate cuts are a double-edged sword for our sector and I’m not convinced we’ve seen the end of inflation. I think it’s going to be a little bit stickier than the Fed would like to believe. I think the Feds are doing the best they can to manage it but make no mistake they are walking on a tightrope. That said, I’m not overly concerned one way or the other.
Today, for a typical renter of ours in the Sun Belt, the spread between renting and owning that same home is about $400 a month, meaning it’s still cheaper to rent than it is to own. In the past, in a more normal lending environment, that spread would have been in the $200 range.
When you examine the data, it shows that with all the build-to-rent pipeline nationally and specifically in the markets ARK Homes For Rent looks at, there will still be a lack of housing supply for the next 10 years regardless of market shifts, so for the foreseeable future, it’s not a huge concern. As Jordan likes to say: ‘Depending on what happens in 2024, we may see some shifting around in lending policy and it may get competitive for a while in terms of concessions, but we think the macro thesis still holds very strong.’
How do you plan to expand your portfolio going forward in terms of new markets and other services related to property management?
Isakson: Our team is always exploring new markets and opportunities in the Sun Belt and across the U.S. and we are working with strategic investors to invest up to $2 billion in SFR and BTR communities over the next few years. We look to identify neighborhoods with strong growth potential to focus our acquisition efforts. We are also keeping an eye out for innovative partners to continue to achieve our wellness goals and adopt the latest best-in-class technology for our platform.
Finally, what advice would you give to new players looking to enter the SFR market, both as investors and as managers?
Isakson: Understanding the market you’re investing in and what kind of housing to build is one of the most critical parts of this industry. While there is an unprecedented demand for housing across the U.S., knowing what type of product people are looking for and finding the right partners to achieve your vision is the difference between who makes it or breaks it in this industry.
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