The build-to-rent sector has emerged as one of the most sought-after investments in commercial real estate, but the fervor might be contributing to an erosion of fundamentals, according to Mark Wolf at AHV Communities.

"Everything is build-to-rent these days. When a sector gets overheated, like this one is, that is usually when those lines get blurred. You have $80 billion chasing a sector that is relatively new, and I believe there is an erosion of fundamentals," Wolf tells GlobeSt.com. "Whenever there is an imbalance of capital seeking product, cap rates tend to compress and valuation mechanisms go through the roof, but investors also loosens their parameters in an attempting to deploy capital quicker."

Location is the biggest challenge for BTR properties, according to Wolf. To place capital and invest in this market, some developers and investors are building these communities 20 minutes to 40 minutes outside of the city center, which Wolf says is too far. "I think that is a high-risk proposition," he says. "Right now, there is a shortage of housing, but in a normal market, people are going to be less inclined to rent those properties if they can find something better located."