“Now we’ll sweep up everybody over the next two years who got stuck, who says I have home price appreciation, which they do. They bought right, but now they are stuck.”
The chief executive officer of the second largest hedge fund landlord articulated in an interview with Bloomberg why a handful of megalords are the process of dominating the single family rental business.
Rising value, soaring rents, atmospheric demand and difficulties finding new properties at below market prices are providing smaller players, includng small investors and “accidental” investors who rent out a property or two an ideal opportunity to cash in.
Consolication is underway across America. American Homes 4 Rent, the second-biggest REIT in the industry, this month bought Beazer Pre-Owned Rental Homes Inc., gaining more than 1,300 houses. Barrack’s Colony American has made four bulk purchases this year, reported Bloomberg in the story by John Gittelsohn and Heather Perlberg.
Another factor for consolidation is the challenge of managing hundreds, thousands of single family homes. Bigger may not always be better for single-family rental operators. Institutional funds that have internalized property management have to be able to maintain thousands of properties that were initially serviced by local and regional groups, said J.D. Asbell, a landlord with about 175 houses in Kansas and Missouri who also renovates and sells homes to Wall Street-backed firms, according to the Bloomberg piece.
“This is a hard business to run,” said Asbell, who has been renting homes since 1993. “The management is always going to be an issue for the big funds. That’s the key to this long term, keeping the houses occupied and getting out bad tenants that aren’t paying.”
For smaller players it may be the time to grow, but for the big boys, these are fantastice times. Rents are setting records and vacancies are virtually non-eistent. The annualized effective rent growth of 3.6 percent in June was the highest since December 2012 and occupancy remained above 95 percent for the second straight month.
“Higher rents translate to revenue growth, which is the combined change in effective rent and occupancy growth,” says Jay Denton, Axiometrics Vice President of Research.
While the single-family rental market is huge, with almost 14 million rental houses in the U.S., the institutional component eventually will comprise a handful of dominant firms, similar to other niche real estate sectors like public storage, according to Jade Rahmani, an analyst at Keefe Bruyette & Woods Inc. in New York, said the Bloomberg piece.