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Residential Investment Firm Claims 'We're In An Aggregation Mode'

December 19, 2022

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A slew of indicators shows the single-family rental market is booming. And according to some, it’s just beginning to launch.

A slew of indicators shows the single-family rental market is booming. And according to some, it’s just beginning to launch.

“We're so early on in single-family rentals being an Institutional asset class. We see tremendous value in what we would consider scattered-site single-family homes,” The Peak Group CEO Ryan Bowers said.

The Peak Group recently sat down with Benzinga to discuss the investment trend. Peak is an alternative investment platform dedicated to single-family rental properties.

The growth is driven by several factors, with a significant driver being younger buyers and families deciding to rent instead of own, leading to higher rental prices. According to a trends report from Arbor Realty Trust, 43% of GenZers want to rent single-family homes after they graduate from college.

As a result, the single-family rental (SFR) market is gaining increased interest and capital from large institutional investors. According to real estate software and advisory services company Altus Group Ltd., this trend has contributed to a stark change in SFR investment, moving away from mom-and-pop landlords to institutional investors like Peak.

“Today, only about 5% of single-family rental homes are owned by institutional groups. Smaller investors, like mom and pops, own the remaining homes. We’re in an aggregation mode right now. In 10 years, that number is going to be more like 20 to 30% in my forecast,” Peak Chief Investment Officer Joe Ollis said.

Limited existing home inventory coupled with high mortgage interest rates has prospective home buyers looking for rentals to achieve their lifestyle goals. Renting is now a popular option among single-person households, growing families and downsizing baby boomers and millennials. Bowers says that what the market is seeing is being fueled by a psychological shift in buyers.

“In the ’60s and ’70s, the middle-class buyer wanted a white picket fence and to stay there for 30 years. Now, especially with our largest demographic of millennials and their ability to move, they live where they want to live, and having a nice home doesn't necessarily have to be tied to owning that home,” he said. “We’re seeing a psychological change in the difference between being forced to be a renter and choosing to be a renter.”

These trends have also contributed to the rise of build-for-rent (BFR) properties, which present more opportunity for portfolio-level investors because they are easier to underwrite, have a low cost of capital and are more efficient to operate. According to Altus Group, in 2020, developers were on track to reach 55,000 to 60,000 new rental housing construction starts, compared to 40,000 in 2019 and a range of just 15,000 to 20,000 a few years before. Now rental housing construction is expected to be the fastest-growing market segment, with an expectation of over 100,000 BFR homes to be built in each of the next three years.

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