Home Builders Find New Buyers in SFR Operators

Home builders are increasingly turning to single-family rental operators as buyers for new construction projects. Large-scale single-family rental operators are growing segment of the market, and represent an opportunity for builders to sell an entire community in a single transaction. Operator Haven Realty Capital has been successful in forming partnerships with builders to quickly scale its portfolio of homes.

“SFR operators like Haven can be a great sales channel for builders who are open to selling an entire rental community to one buyer instead of to numerous individual buyers,” Sudha Reddy, managing principal of Haven Realty Capital, tells GlobeSt.com. “This type of transaction can decrease the total hold period for a builder as operators can typically acquire phases of homes more quickly than individual buyers can buy phases of home.”

In addition, operators are also often more stable buyers than a typical homebuyer, according to Reddy, noting that they are less influenced by interest rate and other market fluctuations. “As a result, SFR operators can help reduce market risk for builders who typically rely on the home buying market,” he says.

The SFR market is still emerging, and there are limited large-scale operators to drive a strong buying pool; however, that is changing. Reddy says the market is growing daily. “The buyer pool of Dedicated Rental Communities and new homes in varying communities is getting deeper daily as more equity becomes available,” he says. “Dedicated Rental Communities allow for more efficient operations and increasing debt options but we see the traditional SFR space gaining in interest as well.”

Although builders are finding new buyers, there is still a limited availability of development sites. “The larger issue at hand is that there is a scarcity of finished lot inventory for builders,” says Reddy. “This lack of finished lots is creating a significant supply—demand imbalance.”

This is true in almost every market in the US, but builders are following the demand trends, looking for opportunities in high growth markets. Reddy says that the key fundamentals include population growth, job growth and affordability. The Southwest, including Phoenix, Las Vegas, Salt Lake City, Dallas, Houston and Austin, and the Southeast, including Atlanta, Nashville, Raleigh/Durham, Charlotte, Tampa, Orlando and Jacksonville, are the top markets for single-family development. “Builders are building in all these markets for the same reason that SFR operators are investing in them,” says Reddy. “As a result, all these markets are conducive to partnerships between builders and operators.”

Partnering with a builder is a good opportunity for operators to quickly scale, but they can also build a portfolio house-by-house. Reddy calls this the “old fashioned way.” He says, “New homes are a very small fraction of the marketplace. Many SFR operators own homes that are older vintage in mature neighborhoods across the country. Believe it or not, all of the public SFR operators acquired homes the old-fashioned way on an individual basis via the foreclosure process or the retail marketplace.”