Trends Watch: Investing in Build-to-Rent Housing Communities

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Greg Fedorinchik, Managing Director of Equity Capital Markets, NexMetro Communities.

What is your outlook for investing in build-to-rent housing communities?

There are four driving factors today. First, there is a secular tailwind of growing consumer demand for a luxury leased new home neighborhood lifestyle – particularly among Gen Z professionals, millennials, and -- increasingly -- retirees.  Second, there has been a considerable dip in new multi-family project starts since 2022.  That will mean less supply of quality housing when we look out two-to-three years.  Third, housing affordability challenges continue to be a problem, with monthly costs often more than $1,000 higher to own a home versus rent.  And last, there’s tremendous runway in build-to-rent (“BTR”) because it offers a combination of affordability and a new home lifestyle to people who have the wherewithal to buy, but are choosing to rent. Multifamily has a long history of recession-resistance and performance, and this is magnified by the unmistakable appeal of a no-shared walls single family rental home neighborhood experience.

Where do you see the greatest opportunities and why?

We see the greatest opportunity in submarkets of major metros with strong demand drivers of job growth, household incomes, etc. These consumers are willing to pay higher rents for the privacy and lifestyle they can’t get with a traditional apartment. Our primary resident demographics range from professional millennials to people in a life transition (like divorce) and baby boomers/retirees. A growing segment is also adults 55+, which recently have made up about 2/3 of rental housing growth. This segment represents about 1/3 of our residents and is growing today. 

What are the greatest challenges you face and why?

It’s said that wealth is made during down cycles and harvested during upcycles. Today, we think that is a particularly poignant insight.  Higher interest rates, higher construction costs, and tighter financing standards are making business execution far more important.  The environment has deterred many companies that are inexperienced in the BTR sector.  We factor these escalations into our project projections, and it is requiring us perhaps to do fewer projects and be much more selective to achieve our return objectives.  That said, we are still finding some great locations that we are confident will perform well and offer great opportunities.

What keeps you up at night?

Being focused on the long-term while navigating short-term market challenges is always a challenge.  We are being more selective and doubling down on the depth of our underwriting, but at the same time we need to grow our talent and maintain our strong company culture as we grow.  Keeping myself and my team focused on the long-term sometimes keeps me up. 

Another challenge we sometimes face is nimbyism.  In certain parts of the world, there is a misconception that there is too much housing, and a resistance to adding rental housing stock.  If you look deeper, all studies agree we don’t have enough rental or for-sale housing supply in the market.  We need broader recognition of this housing shortage and supportive policy and infrastructure to meet the growing need. 

 The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.