In spring 2014, the Mortgage Bankers Association (MBA) held a Single-Family Rental Finance Summit after institutional investors turned their attention to a niche market of non-occupied single-family homes. The summit was held in Washington, D.C., bringing together members of the single-family finance industry, policymakers and industry leaders for a discovery session into current trends in single-family rentals (SFRs). [paragraph] It seemed a natural fit for MBA, since SFR finance fits nicely between MBAs twin missions in residential and commercial/multifamily real estate finance.
A little background
SFRs are not a new phenomenon. Early in the last decade, prior to the housing boom, nearly 11 percent of households lived in SFRs. During the housing boom, SFRs dropped to 10 percent of the overall housing market but now they are back up at 12 percent.
According to the Census Bureau's American Housing Survey, between 2007 and 2011, the number of households renting single-family homes increased by 2.8 million (2,790,000) to 13.8 million households. During the same period, the number of households owning and occupying a single-family house increased by only 198,000 households.
"One in eight households live in single-family rentals," says Jamie Woodwell, vice president of commercial/multifamily real estate research at MBA.
In all housing categories, from two-unit homes to 50 or more units, increases in renter occupancy trumped owner occupancies. The 2011 census reported detached and attached SFR housing accounted for 36 percent of all rental-housing units.
And, after 2011, institutional investors went on a home-buying spree.
An August 2014 report from New York-based Deutsche Bank Securities showed New York-based Blackstone Group LP/Dallas-based Invitation Homes owning 44,000 units; Agoura Hills, California-based American Homes 4 Rent owning 29,200; and New York-based Colony American Homes owning 17,300.
The appreciation for this growing industry grew at the same time the industry started to evolve. Following its spring summit, MBA held a webinar on SFR finance along with a panel session at the MBA Annual Convention in October. Industry participants noted that small to medium-sized investors owned a majority of the market and private capital lenders could provide more financing for SFR landlords to acquire more SFR homes. The vast majority of entrepreneurial owners currently hold one to 15 properties in their portfolios.
Institutional investors viewed SFRs as a niche, underfinanced sector because of a number of constraints on the market, including financing caps on SFRs by Fannie Mae and Freddie Mac.
The government-sponsored enterprises (GSEs) fund investor-owned SFRs through their single-family underwriting, but their cap numbers limit financing for SFR investors. "That cut out a whole part of the market," Woodwell says. "These lenders are looking to complete that part of the market."
The market opportunity
With significant size and opportunity in the marketplace, the current goal for the lenders in this niche market is to help clients grow their SFR portfolios beyond the scope of 14 homes available through Fannie Mae and Freddie Mac, and increase financing beyond the small scope of local to regional banks.
Some of the key lenders moving into the SFR finance market started on the investment side of the business and then moved into financing SFRs. It created an overlap in purchasing and financing non-owner-occupied single-family homes but with separation among the buying and financing companies.
For example, Blackstone's B2R Finance LP, New York, is a SFR finance company separate from Blackstone, with a separate management team and owned by a separate fund within the Blackstone umbrella. The financing firm primarily serves small to midsized investors acquiring SFR properties.
John Beacham, president of B2R Finance, says large investors own only a small percentage of the 14 million SFR homes in the country. …
