Single-family rental owners are selling off big chunks of their portfolios at the highest level in more than a decade, according to data from one research firm. Signaling, that now is the time for some opportunistic SFR investors to liquidate their portfolios. Want to learn more? Continue reading and let us know your thoughts below.
Single-family rental (SFR) owners are selling off big chunks of their portfolios at the highest level in more than a decade, according to data from one research firm.
This jump in volume may signal that large SFR owners are swapping portfolios as the industry continues to mature and institutionalize, and as competition heats up in the sector.
There has been a 98 percent increase in multi-unit single-family sales year-to-date as of the third quarter, according to ATTOM Data Solutions, which tracks property data. There were 185,504 such sales in the first three quarters of 2018 compared to 93,859 during the same timeframe in 2017.
In most of the previous years, multi-parcel sales came in between about 101,000 and 135,000 during the same time period. The last time sales reached anything close to the current figure was in 2006, with almost 180,000 multi-parcel sales.
ATTOM’s data goes back to 2000 when multi-parcel sales totaled almost 55,000 from the first to the third quarter of that year. But the industry took off in 2004 and 2005, when such sales totaled roughly 191,000 and 213,000, respectively. Now might be the time for some opportunistic SFR investors to liquidate some or all their portfolios, as the U.S. median home price is up 77 percent since its low point in the first quarter of 2012, Blomquist noted. Home prices appreciation has also been decelerating for five straight quarters, and rising interest rates mean price appreciation will continue to slow, he added.
“Meanwhile, now that the asset class has been around for a few years, more long-term institutional investor capital is becoming more interested in the space, providing a source of demand for stabilized portfolios owned by the first wave of more opportunistic institutional investors,” Blomquist wrote.
In the industry’s early years, a lot of firms would buy whatever properties they could get their hands on, says Rick Palacios, director of research at John Burns Real Estate Consulting, which provides research and consulting services for the U.S. housing industry. But now that the SFR space has been institutionalized, and portfolios have been built up, there may be operators who want to build scale in certain markets and others who want to exit those markets. “I think it’s really just operators pruning their portfolios and not saying they don’t like the space anymore,” Palacios says.
Around five years ago, when institutional investors started entering the space, there was not as much transparency in the metrics behind operating SFR portfolios—but that has changed, says Jeff Pintar, founding partner and CEO of Pintar Investment Company, a California-based real estate investment management firm. “I think many players have proven that it’s a very viable asset class,” he says.
“The increase in portfolio sales—and, in particular, the trading of portfolios amongst institutional investors—is a sign of the development and maturation of any real estate vertical,” wrote Dana Hamilton, senior managing director at investment management firm Pretium Partners LLC, in an email to NREI. “With increased transaction volume comes greater liquidity and transparency—both of which should contribute to reducing risk and increasing valuations in the institutional single-family rental space. In short, we consider this a very positive development for space.”
Hamilton wrote that the institutional single-family rental space is in the early stages of growth. “It is our expectation that both NOI and portfolio values should continue to grow substantially over time,” she noted.
Bloomberg recently reported that Pretium is exploring ways to provide liquidity to early investors, which could include possibly selling $5 billion worth of its SFR homes—as many as 20,000 properties. Pretium owns more than 25,000 homes, operated by its property management division Progress Residential, in 15 markets. “Building a sizeable, homogenous portfolio of quality single-family homes for rent is a high value-added process,” Hamilton wrote. “It is our firm belief that the value of the portfolio is greater than the sum of its parts. We continue to explore all of our options for the portfolio, which could include a sale of all or a part of it. However, there is no specific timetable for our review or pre-defined path that we have chosen.”
Hamilton added that Pretium has “multiple years left on all of our funds, and [we] believe it makes sense to ensure we fully understand all options available over time to maximize value for our investors.”
Pretium has acquired single-family homes one by one in targeted markets, Hamilton wrote. And the owner does not plan to stop its acquisitions activity. In July, the firm announced it raised $1 billion to expand its single-family rental business. “It is our expectation that we will continue to purchase homes, given considerable demand for single-family rentals from both consumers and investors,” Hamilton said.
And the backdrop is there for institutional investors and operators to build scale. Investor appetite for these assets remains strong, and there is more capital in the space as the industry proves itself out, Palacios says.
“There’s a lot of capital being raised in the space and a lot of people want to grow,” says John Pawlowski, residential sector head at California-based research firm Green Street Advisors.
Cerburus Capital Management is raising more than $500 million to buy SFR properties and Amherst Holdings LLC is also raising $1 billion to buy these rentals, according to Bloomberg.
The trend seems to be in favor of bigger players acquiring smaller portfolios to build scale. In December 2017, Amherst announced it completed the acquisition of 671 SFR properties from private REIT Broadtree Residential Inc. Also, late last year, Amherst announced it closed on the sale of about 3,500 homes for $534.9 million to Altisource Residential, L.P., through a subsidiary. Amherst will continue to manage those properties.
“It wouldn’t surprise me if smaller operators just can’t compete with these guys and just cash out,” Pawlowski says.