Berkadia Webinar Charts SFR/BTR Vitality in Development, Occupancy, Investment 

In Berkadia’s August 28 Beyond Insights webinar, Navigating Market Dynamics in SFR & BTR, John Burns, CEO of John Burns Research & Consulting, delivered the featured presentation. Joining him in the webinar from one of the most active lenders and investment sales brokerage firms in the single-family rental/build-to-rent (SFR/BTR) sector were SVP – Berkadia Institutional Solutions Dori Nolan, Berkadia Managing Director Joel Kirstein, and Senior Director Andrew Curtis. 

The webinar centered around the challenges and opportunities in the SFR/BTR sector today, particularly in the context of rising demand and limited housing supply. Also, diving deeper into how current market dynamics are shaping the future of rental housing and the critical role build-to-rent developments play in meeting the growing demand.  

“With rental demand so strong and homeownership so far out of reach financially, what do we need?” asked Burns. “We need more rental housing, and build-to-rent is a product for people who want something new.” 

Despite a historically strong homeownership rate of 66% across the 146 million housing units in the U.S., significant challenges remain in terms of supply and affordability. In March 2023, Burns surveyed the SFR/BTR landscape and at that time the U.S. housing market was undersupplied by 1.7 million units.  

Eighteen months later, he said on the webinar, “We have not been solving the problem. It’s actually been getting worse. We’ve got two million units undersupplied,” a situation that is actually more severe in the rental market than in for-sale. 

One encouraging development is the growing participation of homebuilders in the rental sector. “We’ve got a very different type of builder out there,” said Burns. “The homebuilders now are very well capitalized with very low debt levels. They’re going to keep building through this. And actually, their newest customer is people buying rental homes. They did not have that before.” 

He continued by saying, “One of our [BTR] clients just raised a billion and a half dollars in equity to buy new homes from homebuilders. That’s been the game changer here.” 

For investors, it’s a prime opportunity, Burns and Nolan pointed out. The sheer size of the rental housing market is a factor: upwards of 45 million rental households.  “Of those 45 million rented units, 29 million are apartments, 14 million are single-family-rental homes,” Burns said. “That is almost half the size of the apartment market. This is a big opportunity that nobody took advantage of before, in part because the tech wasn’t there to be able to do it very efficiently. And now it is.”  

Along with scale, there’s also the continuing fragmentation of the SFR/BTR market. Although institutional players such as Invitation Homes, AMH, or Progress may appear to dominate the field, the larger SFR/BTR owners control just 3% of the housing stock. 

Burns stated the majority of the supply is in the hands of owners with one to nine units. Landlords often include fix-and-flippers or homeowners who rent out their first homes after moving into a second one. This presents a significant opportunity for professional landlords, as many tenants surveyed by Burns expressed a desire to rent from a larger, more established company rather than mom-and-pop landlord. 

Year to date, Berkadia has seen SFR/BTR debt and sales volume already running 35% ahead of 2023’s full-year total of $480 million, Nolan said. “We are witnessing firsthand that more investors are underwriting, touring and bidding,” she said. “The bid-ask gap continues to narrow for high quality, well-located assets where pricing is attractive relative to replacement cost.  

Berkadia sees the recent surge in investment activity as a positive sign that maybe we’ve hit the bottom of the cycle, and we’ll continue to see more activity with the recent rally in treasuries and as we close out 2024 and head into 2025. 

Regarding the lending sources that are supporting this investment activity, “On the BTR side, it’s Fannie, Freddie, and multiple life insurance companies,” Kirstein said. “On the shorter end of the financings, we’re seeing the large institutions use aggregation warehouse lines, and then eventually they have some exit path to securitization or a larger programmatic, platform facility. We’re also seeing some new entrants into the space, new originators of debt that are effectively using pension and life insurance company money originating debt through those platforms.” 

On-demand replays of the August 28 webinar are available by clicking here.