“How to Win in Built-For-Rent Housing”
/We’ve written somewhat obsessively about the explosion of built-for-rent (BFR) developments recently. There’s no question that purpose-built, single family rental (SFR) communities are popping up literally everywhere. It’s hardly a trend at this point. The pipeline over the next several years is utterly staggering and we anticipate 5-10 years of steady growth in the asset class.
The master bedroom in our “Beacon Ridge” development’s master bedroom.
Brad Hunter of Hunter Housing says that there’s at least $40 BILLION queued up for investment in the next few years. Hardly a week goes by without a $250 million+ investment or joint venture announcement. I laughed to myself this week when AHV announced that they have $500 million earmarked for SFR construction this year and pretty much nobody reacted. So what, who doesn’t? If that isn’t a sign of the current state of the market...
So as investors in the space, how do we win with all of this money pouring in? How can we distinguish ourselves and outperform the competition? We’ve been pondering it for a while now and given that we have a head start (compared to the elephants walking into the room), here’s our basic strategy:
Focus on the resident experience: This is the single most important factor to winning in built-for-rent. Getting residents into the homes is easy. Keeping them there and establishing a sterling reputation in the industry is more challenging. We’re in this for the long haul and we want residents to feel that way too. Residents should feel like we’ve thought of everything so that they don’t have to. For most of our “renters by choice”, we need to double down on efforts to provide an unrivaled living experience without the hassles of home ownership and with the community of a friendly neighborhood. If we nail that, then we’ll see higher rents, reduced turnover, and higher resident satisfaction that directly impacts financial performance.
Focus on the people / community: In order to build the ultimate living experience for our residents, it begins with our property and maintenance staff. We need to hire folks who are friendly, thoughtful, and just as much a part of the community as its paying residents. We feel so strongly about this that we’ll be personally on-site during the initial lease up phase to ensure that residents arrive and feel the care and attention to their experience. One of the beauties of a rental-only community is that everyone is in this together. In other communities where some residents own and some rent, there seems to be a stigma to renting that doesn’t make any sense to us. In our communities with all renters, we’ll be establishing community through group activities and amenity-centered opportunities for folks to get out of their houses and connect with their neighbors. We think that this ultimately will build loyalty and fellowship among residents unlike urban multifamily properties where few people really know their neighbors.
Focus on value: Our biggest supporters are our residents. We want them to boast about their living experience and the conveniences and freedom of built-for-rent communities. If we continue to provide unrivaled value to our residents, it will create an inevitable word-of-mouth marketing mechanism that will support occupancy and rents.
Focus on local presence: There are dozens of hot real estate markets right now with demographic drivers that real estate developers are drooling over. Some examples include Denver, Nashville, Charlotte, Orlando, Phoenix, Boise, Dallas-Fort Worth, Raleigh-Durham, and much more. Our goal is to nail it with just a few, rather than spreading ourselves too thin across multiple geographies. This will allow us to build brand loyalty and recognition in a market (such as Minneapolis or Nashville). Additionally, with a more concentrated portfolio, we’ll be able to iron out the kinks of multi-site management. We’ll create systems that are efficient and beneficial to the portfolio’s bottom line. Later on, we can consider migrating into new markets but our short-medium term goal is to perform well in our markets.
The “Sawyer” model at our Beacon Ridge development in Plymouth, MN
So that is our plan. Obviously, we’re going to have beautiful homes. Everyone else will too. At the end of the day, there’s only so much inside or outside of a home that will be unique from one community to the next. And with so many national homebuilders entering the fray, it’s pretty likely that layouts, finishes, amenities, and quite frankly, entire communities, will be eerily similar.
We’ve invested in multifamily over the years too. We know that many developers end up in an amenity race to lure in residents. BFR communities are a little different. We’ll have great amenities of course but the value is in the community itself, the lifestyle experience, and the value derived from not owning a home. Our goal is to win in a different type of race. In order to do that, we’ll need to succeed in providing the very best living experience possible. The rest will come. Stay tuned...
Brett P Holmes, Steel City Management