Lender Confidence Brings New Liquidity to Single-Family Rentals

Lenders are showing increasing interest in single-family rental deals. The capital will play an important role in the sector’s growth. The increased liquidity puts single-family rentals on track to experience an evolution similar to the multifamily market over the last decade.

“Increasing liquidity in the form of equity and debt is going to provide strong support for the industry going forward. It’s important that there is a broad group of lenders to finance deals of all sizes and operators that have different business plans and capability,” Sudha Reddy, managing principal at Haven Realty Capital, tells GlobeSt.com. “There is no reason why the SFR industry can’t mimic the evolution of the multifamily industry. Reliable, lower-cost debt financing will be one of the key drivers of future growth.”

Strong fundamentals and interest among institutional investors have helped lenders get comfortable with the emerging market. “While the SFR rental industry has been growing over the past decade, the strength of the underlying fundamentals is now becoming increasingly apparent, which is drawing in larger amounts of both debt and equity to the space,” says Reddy. In addition, activity in the last 12 months has proved the resiliency of the model. “Now that there is reliable data on operations and performance, lenders now have real opportunities to finance portfolios of SFR as well as construction and acquisitions of Dedicated Rental Communities, which are entire housing subdivisions devoted exclusively to renters,” adds Reddy.

While capital availability will expand SFR growth potential, the market is still in its infancy with limited options for unique business plans. “The lending market for SFR is still in its early stages of formation relative to multifamily,” says Reddy. “Multifamily has been a mature asset class for several decades and as a result has had excellent liquidity for all types of business plans. The SFR lending market has evolved significantly over the last decade but still lags multifamily in financing options.”

However, that is changing, according to Reddy. Increased lender interest has also brought an increase in options. “SFR is catching up quickly as lenders are beginning to get more comfortable with development, construction and certificate of occupancy business plans,” he says. “SFR financing is also getting cheaper as more transactions are completed. It is important to note that investors should recognize that lending relationships are key and finding high quality lenders that are executing in the sector is as important as finding the lowest rate.”