Insights From IMN: SFR East PT. 2

[Tyson Scheutze]

Read below for my remaining notes from the Single Family Rental Forum (East) that are specific to build-for-rent!

NOTES

• Build-for-rent is the only game in town.
• Nationwide 45,000 current BFR in pipeline. There were 27,000 in 2023. There were 7000 in 2020.
• In BTR communities, think about what do we want to charge them for vs. what do we want to give them for free?
• Outdoor fenced space and smart home tech is expected in most BFR.
• Maintenance experience is the number one reason tenants leave BFR.
• BFR tenants are stickier than multifamily.
• Leverage lessons learned from BTR pioneers.
• Prospect pool For BFR overlaps multi and scatter sites.
• BTR residents often want less onsite people presence. Belief is they want freedom of interaction in their experience.
• Adjust what has been pertinent in multifamily and what has been pertinent in SFR to a better product.
• What is the difference between a value-add and opportunistic fund?
• One owner is looking to exit to middle to high sevens on yield on cost.
• Cap exits are high 5’s, low 6’s for some Class A product.
• Turnover cost projections should escalate: $500 first year, $850 second year, $1000 third year.
• Consolidation and density of BFR assets can be an issue for insurance companies.
• Owners should write a narrative about deals/assets for insurance providers.
• 2-3% rent growth is always appropriate.
• Rents are flattening.
• Buyers are focusing on untrended rents.
• Getting the pig through the snake, as an analogy for getting through current excess rental inventory absorption to get to a gap that will exist in a couple of years.
• A lot of opportunities to buy aged C-class homes at 8, 9, 10 caps.
• Small investor expense ratios are 40%.
• Large operator expense ratios are 37/38 %.
• Large platforms/institution expense ratios are 33/34%
• Big benefit of blanket insurance policies is to drive costs down.
• A lot of BFR is looking for a bridge product for 2 years to hope rates get back down in the 5% range.
• Cannot use HPA on BFR communities you plan on selling based on cash flow.
• 5-18% rental premium being achieved based on new construction communities compared to new construction scatter sites.
• For real time comps go to biggest operators BFR, small multifamily.
• More confidence about the cost of construction having stabilized.
• Some products which will not be good for retail buyers will also not be good for rentals.
• What is core + capital?
• On-site, timely maintenance is #1 amenity for BFR.
• You are buying a stabilized untrended yield on cost.
• Apartment data is very good for BFR.
• BTR more resilient to flat rental growth.
• Fundamentals of BFR are normalizing.
• Look at supply coming into any market you are developing.
• Look at yields that are accretive to debt.
• Investors in 2021 and 2022 looking at just yields and not market value of their assets.
• Put together asymmetry in your investments, cap the downside but stack upside.
• Underwriting the choppiness for the next 5 years, supply constraints will make a huge demand.
• Fundamentals are stronger now than they have been in the past 5 years.