Single-family rental (SFR) housing, comprising 16 million housing units in the United States, continues to drive institutional investor interest, and JLL Capital Markets has capitalized on the trend by creating a new team to specialize in this alternative asset class.
JLL’s newly formed national team includes Matthew Putterman, Chris Shea, Zach Nolan and is overseen by Bill Miller, who co-leads JLL’s National Multi-Housing Group. The group’s direct access to SFR data, pricing, operations and capital flows nationally will better serve clients, drive awareness in all markets and provide a specialized approach to this alternative asset class.
“While JLL has had transaction professionals heavily involved in SFR since the space became increasingly institutionalized coming out of the Global Financial Crisis, the need to create a dedicated practice within the firm has become apparent as more and more investors and developers turn their attention to the asset class,” Nolan says.
The team’s additional focus in the SFR space is a direct response to the increase in institutional investor interest, which traditionally consisted of mom-and-pop investors. Amid the pandemic, the demand for more space has driven a temporary shift to the suburbs, fueling the strongest housing rally in over a decade, with the residential housing market reporting home sales in September increasing 10 percent above August for a seasonally adjusted 6.5 million homes sold, according to JLL Research.
In addition, SFR homeowners are reporting record high occupancies and rent growth. According to data from DBRS Morningstar, rents in institutionally owned SFR portfolios have grown more than 3 percent annualized in 2020. Stay-at-home orders and reduced mobility, along with renters in many cases working and schooling from home is pushing more individuals and families to rental homes with more space.
Institutional investors are allocating significant dollars to what they see as an opportunity to get ahead of a long-term trend. Institutional owners, who own more than 100 homes, comprise less than 3 percent of total inventory, providing new entrants ample opportunity for growth in this sector. For example, JLL Capital Markets recently closed a $133.7 million capitalization, on behalf of Haven Realty Capital with an institutional equity source, for a six-property portfolio of new and to-be-built homes in the greater Atlanta area.
“Demand for less-dense environments, more space for work and school, and a desire for the ‘lock-and-leave’ lifestyle support substantial demand for single-family rental homes,” said Putterman. “Since the Great Financial Crisis, the adoption of new management and leasing technologies has enabled investors and operators to aggregate substantial portfolios in ways that didn’t previously exist.”
With people establishing themselves in rental homes, single-family rental housing has seen lower turnover rates than traditional multihousing, closer to self-storage renter retention rates.
“Residents are utilizing the extra space and garages for living and storage which has helped support the low turnover and strong rent growth investors are seeking,” added Shea. “Invitation Homes Inc. (INVH) reported renewal rent growth of 3.3 percent in the second quarter 2020 and new lease rent growth of 5.5 percent in the same timeframe helped by continually declining turnover rates.”
JLL Research points to single-family rental REITS as another driver of investor interest. REITS have outperformed the broader REIT market in 2020 by 23 percent, exceeding traditional multihousing (-9 percent), office (-22 percent) and shopping center (-33 percent) sectors.
JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients—whether investment sales advisory, debt placement, equity placement or a recapitalization. The firm has more than 3,700 Capital Markets specialists worldwide with offices in nearly 50 countries.