Build-to-Rent: Challenging Times Yield New Options & Strategies
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small multistory homes

By Barbara Ballinger |

December 27, 2022 |

Updated January 3, 2023

11 minute read

Outlining six leading considerations for BTR management.

With interest rates rising, home prices still unaffordable for many and inventory not meeting demand, developers, homebuilders and institutional investors are looking to alternatives to meet America’s housing needs.

One way some find success is through build-to-rent (BTR) single-family and detached townhome communities. The BTR acronym has caught on for a variety of reasons.

Consumers win by gaining more interior and exterior space through larger footprints found in BTR products, as well as private yards that are heavily favored by certain demographics. They enjoy a sense of community due to the proximity of homes, which single-family houses on scattered sites can’t provide, and the camaraderie that comes from togetherness in clubhouses, which many BTR communities include. BTR also cuts residents’ maintenance costs since management frequently pays for mowing, plowing, repair of appliances and mechanical systems, and there are no real estate taxes or HOA fees.  

Developers also experience an upside because of generally lower costs to construct single-family homes versus multifamily buildings and the often-leaner staffs they may employ. While the BTR concept is not brand new, it has ramped up in recent years. According to the National Association of Home Builders’ analysis of Census Bureau quarterly numbers, there were approximately 21,000 single-family BTR starts during the second quarter of 2022, a 91% increase compared to the second quarter of 2021. During the past four quarters, construction began on 69,000 such homes, a 60% increase compared to the 43,000 estimated single-
family BTR starts in the prior four quarters. It’s expected to keep growing as more large homebuilders see the value of this niche and enter or play a bigger role.  

Why now?

Paul Megler, Executive Vice President of Scottsdale-based Walton Global, a privately owned land asset manager whose firm owns about 80,000 acres of land and more than 180 master plans that it sells to homebuilders and other real estate developers, attributes the increase to a renter’s lifestyle choice driven by the rising costs of homeownership and the work-from-home (WFH) trend COVID triggered. “A demographic of renters has shown us that they want more space and the feel of a single-family house, but they’re not ready to make a purchase decision yet,” he says.

Others says interest in BTR began prior to the pandemic and higher interest rates, though the recent climate has put the concept on steroids, says Peter Chacon, Vice President of Investment Sales at Minneapolis-based Northmarq, a leading capital markets resource for commercial real estate investors.

For example, Miami-based Wolfson Development has been in this category in the Southeast for the last five years, building communities of single-family and townhomes with amenities, says Founder Adam Wolfson. His pipeline now includes nearly 1,800 units and $1 billion in total valuation. His company started developing this product type in Bradenton, Fla., when it decided for-sale housing wouldn’t provide strong enough economic returns on a parcel it controlled, so it switched to homes to rent. “It costs less to build than vertical apartments, which require different subcontractors, vertical construction, structured parking and so on,” he says. “Also, as interest rates continue to rise, this rental niche won’t reflect the cyclical ups and downs of the for-sale housing market as dramatically. It also will be able to provide new homes versus an existing pool of older for-sale housing in need of renovation typical in the [single-family rental] industry.”

But so much in the BTR segment varies, as it does in for-sale single-family and multifamily apartment communities, from the product type (entry-level up to luxury), number of houses, whether there’s a clubhouse and what its amenities and activities are, and the level of service the developer/owner/manager employs in leasing and maintenance, says Don Walker, Managing Principal at Irvine, Calif.- based John Burns Real Estate Consulting. The bottom line, Walker says, is that the country needs more housing and BTR offers another choice that requires different skill sets to make it work.

The following are six strategies to help.

1. Cater to your audience.

Even though management doesn’t incur the expense to manage common hallways and some bells and whistles of multifamily apartment buildings, it still needs to focus on residents, says Diana Pittro, Executive Vice President of Chicago-based RMK Management Corp. A big part of doing that well involves knowing who the target audience is and offering the right amenities and services.

Because the BTR concept is still relatively new, developers, owners and managers are only beginning to learn about its cohort. To date, it seems to cut a broad swath, says Walker. He cites those who move for a job and are waiting to get into a home, sold a home and are waiting to find another or have one finished and those who want to test out a new market.

Overall, the biggest group may be Millennials who are starting families and have pets, so they want private outdoor spaces rather than share a pet park, and they can also work from home or in hybrid situations, says Pittro. BTR also appeals to Baby Boomers looking to downsize—but not drastically—and save equity from their homes rather than invest in another. Wolfson sees some in that group wanting to reside for six months of the year as snowbirds in a warm climate but not purchase a second home in that locale.

Marshall Gobuty, Founder of Sarasota, Fla.-based developer Pearl Homes, is trying to make Florida accessible and affordable for all as the interest rate increase made purchasing a home more difficult, he says. One way he’s working to do that is to keep costs down by making his products 100% LEED certified and even LEED Zero at his Hunters Point community in Cortez, Fla., near Sarasota. 

2. Heed what they do.

To date, most BTR residents stay longer than apartment dwellers, so leases are turned over less frequently, which means not as much effort and time are needed to fill vacancies, and sometimes not with a full-time, onsite leasing agent. “In a typical apartment community, there’s a 40 percent to 50 percent turnover yearly but in this niche, it’s down to 40 percent,” Chacon says. Though Deercrest Town-

homes opened only last year in Antioch, Ill., Pittro, whose company manages it for a Chicago homebuilder, expects a turnover of less than 40% as more Millennials find they can be in outlying areas where they can live more affordably. Megler also sees lower turnover with most staying two to three years.

These longer-term residents tend to take better care of their properties than those who know that they’ll be out faster, Wolfson says. The industry is working to manage turns and keep homes looking their best by using more durable materials, Walker says. “Laminate flooring choices that resemble wood are more sustainable and granite or other solid-surface countertops are easier to maintain,” he says. “Managers have learned from choices they made for multifamily apartment buildings.”

3. Listen to what they want.

Despite becoming accustomed to paying online and leasing remotely, that doesn’t mean those approaches appeal equally to all. “Many Boomers miss in-person communication and are tired of email,” Pittro says. “We’re finding it helpful to take a unit, set up an office, help people move-in and walk through units, and also for us to have a place to keep supplies for work orders,” she says.

4. Manage a clubhouse and other amenities.

Managerial roles at some BTR communities are different than at traditional multifamily, says Mary Cook, whose Chicago-based commercial interiors firm, Mary Cook Associates, works with real estate owners and developers. “At BTRs, it’s more about responsiveness to maintenance of a house and lawn,” she says.

But clubhouses still need attention if included, with the level needed dependent on what features are in them, how many use them and if activities are programmed. Wolfson’s are packed with a plethora of trendy options such as a pool, gym, tot lot, bark park, nature trails, business center, multipurpose rooms and in many cases pickleball and tennis courts and car/dog washes. Other developers incorporate fewer amenities, making management easier and less costly. That’s the case with those that Chacon’s developments construct. “You might get a clubhouse with tennis or pickleball and a dog park but probably won’t get a pool,” he says. “But some houses have pools in their yards.”

At the Seaglass Cottages Apartments in Myrtle Beach, S.C., and other BTR communities that Joya Pavesi’s firm, Charlotte, N.C.-based RKW Residential, manages, amenities are sparer and may include only a lap pool, state-of-the art fitness center and bocce ball court. But the “true” amenities at some BTR communities, she says, are within the home such as doggie doors. “Residents won’t have to take their dog to an elevator and out to a dog park. The homes will also feature nice touches such as programmable thermostats,” says Pavesi, Executive Vice President of Marketing and Strategy.

And at still other communities, amenities may be more bare-boned and feature only walking trails, Cook says.

5. Remain flexible as the product evolves.

Because of its newness, managers need to be able to pivot—what they learned to do at their multifamily apartment communities during COVID—as some BTR communities add more housing and amenities in subsequent phases. Deercrest Townhomes and another development RMK manages, the Conservancy at Gilberts in Gilberts, Ill., didn’t open with clubhouses, but they will be added as more townhomes and single-family houses are built, Pittro says. Deercrest Townhomes also will gain more dedicated staff of a leasing agent, maintenance crew and manager, she says. “Right now, it only has 64 units but 110 will be added in a nearby development next year, which all will be single-family homes to rent.”  Walker concurs with this approach and says other communities that are large enough may want onsite staff at least part of the day or during lease-up.

6. Pare staff costs by leveraging technology and residents’ skills.

Developers and managers can cut costs by reducing head count because of centralizing roles due to fewer maintenance functions and greater dependence on technology, says Pavesi. For example, instead of having leasing staff show potential residents houses and facilities, companies can use self-guided tours, borrowing lessons from multifamily developments, particularly after COVID emerged. “That became very common and accepted at multifamily housing,” Pavesi says. And with BTRs, residents are willing—and may prefer—looking on their own so they don’t have to make appointments and work with others’ schedules, she says.

In addition, the Millennial demographic is more self-sufficient when it comes to maintenance. They’re used to changing lightbulbs and handling other minor maintenance requests. Same goes for Boomers coming out of homes and knowing how to perform certain tasks such as plunging a stopped-up toilet. Such factors also lead to a need for less staff, Pavesi says. “With multifamily housing, you traditionally need one leasing consultant for each 100 units, so management may be able to get the headcount down to .9 or .8 in the BTR market,” Pavesi says. That’s a huge advantage since lowering overhead and payroll and leveraging technology more offers better returns, she says.

 

How BTR homes compare in size, price, location

Think of them as a hybrid in many ways between single-family homes and townhouses and multifamily apartments. Here’s more of what to expect.

Size and price. Most communities offer townhomes and single-family homes. Adam Wolfson’s Miami-based firm, Wolfson Development, is completing its first project, Cantabria, with 184 homes on the Bradenton, Fla., property. Homes will feature three and four bedrooms, measure an average of 1,500 square feet, have attached garages and be priced from $2,600 to $3,400 a month. It’s starting work on Encanto Isla in Kissimmee, Fla., with 214 units and a similar number of bedrooms, square footage and prices. “All are larger than most apartments and somewhat comparable to houses, a big part of the appeal to consumers, he says. 

RKW Residential, now owned by Hello Alfred, entered this sector as a manager a few years ago. “We identified BTR as an attractive option for renters due to the broader housing affordability issues and increasing demand for more space and privacy,” says Joya Pavesi, Executive Vice President of Marketing and Strategy at Charlotte, N.C.-based RKW Residential, which manages Sands’ BTR Seaglass Cottages Apartments in Myrtle Beach, S.C., and many additional BTR communities.

The developments that Peter Chacon’s Northmarq firm is involved with reflect similar numbers and a mix of attached townhomes between 1,300 to 1,400 square feet and prices from $1,500 to $2,000 a month, and single-family homes of 1,800 to 2,100 square feet and prices between $2,000 and $2,500 a month, he says.

At Deercrest Townhomes, a new community of 64 rental townhomes in Antioch, Ill., square footage ranges from 1,400 to 1,700, with big driveways and garages adding to the feeling of space, and prices from $2,200 to $2,500, says Diana Pittro, Executive Vice President at Chicago-based RMK Management Corp., which manages the development.

Sarasota, Fla.-based Pearl Homes’ Founder Marshall Gobuty has taken a similar approach with his OurLives community in Ellenton, Fla., where single-family homes will range from 900 to 1,800 square feet and rental prices from $1,600 to $2,600 a month when completed in 2024.   

Location. Locations vary too but share some commonalities such as being near good employment opportunities and schools, retail and other services and sometimes transportation hubs, though with WFH that may matter less.

Wolfson’s firm favors sites that are a five-to-10-minute drive from a downtown such as St. Petersburg in Florida. Pittro says outlying suburban areas where there’s been little supply of rental housing and residents can gain outdoor space have been a focus of the Chicago developer her company has worked with on Deercrest, which will gain more inventory in future stages. The same developer has also broken ground for the Conservancy in Gilberts, Ill., and next year will start on the Clublands of Antioch in Antioch, Ill., and Bristol Farms in Yorkville, Ill. “The land in these locations is cheaper,” she says.

Others also hear interest in sites farther out—30 minutes or so from a city—for another reason. Municipalities there are likely to approve the required density to accommodate enough houses to create a community, Chacon says. “We’re seeing BTR communities pop up in [Georgia] locations like Cartersville, Gainesville, Winder, Douglasville, etc. because the primary pockets like Marietta, Sandy Springs, Brookhaven and others are harder to get deals approved,” he says. —B.B

 

Barbara Ballinger is a frequent contributor to units Magazine.