The Single-Family Rental Series: Part I

The Single-Family Rental Series: Part I

As leadership mogul and former Navy Seal, Jocko Willink states in his award-winning podcast, “You must face history so you can learn from it.” Over the course of three months, Watermark will be giving an in-depth look at a concept that is taking the housing market by storm : Single-Family Build to Rent Communities (B2R). In order to fully understand the evolution of the housing market, we must first look to the past and identify forces that cultivated change and spurred innovation.

When the financial crisis of 2008 occurred, a proverbial shock wave hit the single-family market producing a fearfulness from both lenders and consumers, many could not or would not buy or lend. The housing market crash left banks with vacant homes on their balance sheets and potential homeowners without the credit standing needed to qualify for a mortgage. While this presented a significant problem to the vast majority, many institutional investors viewed this as the opportune time to capitalize on these distressed portfolios. With home values and interest rates plummeting, several investment firms began purchasing single-family homes with the intent to sell after the market volatility subsided. [1]

However, rather than wait out the storm with a portfolio of vacant, unused homes, several investment groups began to shift strategy. We began to see the emergence of investment groups whose primary strategy was to buy distressed single-family homes for the purpose of renting them out. In 2012, investment guru Warren Buffett was quoted in a CSNBC interview saying, “If I had a way of buying a couple hundred thousand single-family homes and if I had a way of managing them…I would load up on them.” [2] Single-family rental investment groups such as Tricon American Homes and Invitation Homes took heed of this advice and became the authority on single-family rental properties as a result of this market shift. Both beginning in 2012, Invitation Homes and Tricon American Homes have acquired nearly over 100,000 properties across 27 states in the U.S. collectively. As their portfolios expand, they are now offering full-service amenities, smart home features, and tasteful renovations – raising the standards and expectations of single-family renters across the U.S. [3]

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The Single-Family Rental (SFR) concept presented itself as an income-generating alternative for investors as well as the perfect housing solution for those unable or not wanting to purchase a single-family home. As the market value of homes began to climb, and the economy bandaged up its wounds, this SFR asset class continued to emerge as a viable option for renters and investors alike. Nonetheless, even with this upward trend of single-family homes for rent, only 2% of single-family homes used as rentals are owned by institutional money. For comparison, 57% of Multi-Family units are owned by institutional money. [4] Further, as groups have added single family homes to their rental portfolio’s, several inefficiencies have come to the surface. One, is the fact that most single-family rental home portfolios are by nature, scattered and variant. This means, an investment firm might own 250 homes in a metropolitan area. Each of those homes might be anywhere from 10-60 minutes apart from each other. Not only the distance, but each of these houses might possess different types of mechanical systems and a variety of necessary maintenance. Again, compared to the world of Multi-Family assets, the scattered site single family rental home concept possesses a host of obstacles and inefficiencies. This trend and preference for detached rental units, coupled with the existing inefficiencies of building a scattered single-family rental portfolio is what eventually gave birth to a new asset – the Single-Family Build-to-Rent Community (B2R). [5]

In short, B2R Communities are comprised of Single-Family Homes exclusively built and designed for renting. With custom-build designs and full-service amenities offered to the renter, B2R provides numerous similarities to home ownership with minimal upkeep required. As the percentage of households in the market for renting soars to new heights, the stigma formerly associated with renting has had an inverse relationship. A higher percentage of households are now renting more than any time in the last 50 years. Notable drivers of this statistic are the exorbitant amounts of student loan debt saddled on millennials, debt or apprehension from Baby Boomers burned from the last market spiral, and the overall manageability and flexibility of leasing over buying. Here are some quick statistics on the renter’s market:

-          35% of U.S. renters rent single-family homes [6]

-          5% increase in the overall number of renters in the last 10 years [7]

-          8% increase in the number of Millennials renting/seeking affordable housing options [8]

 

As this market for B2R communities continues to flourish, Watermark is among the front-runners in the industry. With the already award-winning Mills Creek development experiencing remarkable demand, followed by the neighboring Beacon Ridge development undergoing construction this summer and property recently purchased in Denton, Texas, we are growing more and more excited about our future in B2R. Being a company built upon the foundation of relentless scrappiness and a winning mentality, we are noting economic trends and acting swiftly to meet consumer needs.

Over the course of the next three series installments, we will be unpacking the concept of B2R as well as highlighting market predictions and the direction in which this concept is heading. Thank you for your interest in Watermark Equity Group and stay tuned for the next installment of our Single-Family Rental Series.


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Mike Berttucci

Mike is the Finance Director of Watermark Equity Group. Since graduating Wheaton College (IL) with degrees in Business and Economics, Mike was active in community development and was a professor of business studies before joining Watermark in 2017.


Mills Creek as Top Finalist in 2019 Minnesota Real Estate Awards

Mills Creek as Top Finalist in 2019 Minnesota Real Estate Awards

Maple Grove, MN - April 16, 2019

Watermark Equity Group is pleased to announce that one of their developments, Mills Creek, a single family home rental community has been awarded as a Top Finalist for best suburban multifamily in the state of Minnesota by the Minnesota Real Estate Journal (MREJ).  MREJ is the only standalone commercial real estate publication in Minnesota and has been covering the commercial real estate industry since 1984. Out of hundreds of nominated projects throughout Minnesota, the journal handpicks the top achieving communities for each year.  Watermark’s Mills Creek was selected for its innovation, performance, and design. Watermark Equity Group is grateful and excited to have received such a prestigious award.

Forth Worth project will turn shipping containers into apartments

Forth Worth project will turn shipping containers into apartments

More than 30,000 apartments are being built in Dallas-Fort Worth. But a small Fort Worth project may be the most unique rental community on the way in North Texas.

The 34-unit apartment project being built south of downtown Fort Worth will be constructed out of 76 steep shipping containers.

“It is truly a unique multifamily residential property,” said Steve Keys with Keywinn development, which is the general contractor. “The shipping container home residences will provide the Near south Side community a Class A, new construction living experience at an attainable price point, while satisfying a growing demand among the community for innovative, modern, and novelty living.

“Additionally, the use of new containers will allow for reduced construction costs and accelerated building timelines resulting in reduced, achievable rents.”

Called CoHo - short for container home - the development will have seven, 3-story buildings that will house studio, 2-bedroom and 3-bedroom rental units. Keys said most of the new containers used for the construction will be 40-footers.

The parking will be underground. It’s Key’s second shipping container project.

“It’s been an interesting niche market opportunity,” he said. I’m working on plans for another multi-family project using containers.”

Chicago-based watermark Properties is the developer of the one-of-a-kind rental community on West Terrell Avenue near Fort Worth’s medical district.

Fort Worth architect Matthijs Melchiors built a 3-story office complex on Evans Avenue near Interstate 35W. The Connex Office Park was constructed out of 40 shipping containers.

“It’s open, operating, has tenants,” Melchiors said.

Appreciating Commercial Real Estate Investments

Appreciating Commercial Real Estate Investments

Whether it’s an office building or an apartment complex, commercial real estate provides the diversification, stability, and growth potential uncommon amongst their traditional and non-traditional investment counterparts.

Tumultuous Times: What is Your Hedge Amidst Volatility?

Tumultuous Times: What is Your Hedge Amidst Volatility?

The up and down nature of 2018 was more representative of a gut-wrenching roller coaster than that of a sturdy and steady asset class. It begs the question: How can investors protect themselves against market volatility and consumer uncertainty?