- A year ago, big single-family-rental companies couldn’t buy homes fast enough.
- Now many are pulling back in the face of higher interest rates and market volatility.
- That’s left some big portfolios sitting on the market — but don’t expect the lull to last long.
This past summer, a huge portfolio of 2,000 homes hit the market.
The properties, which were scattered across the Sunbelt region of the US and collectively valued at more than $500 million, were managed by Resicap, an Atlanta-based single-family-rental company known for its work with top housing investors, including Lone Star Funds. The portfolio offered buyers a chance to scoop up homes in attractive markets like Dallas, Atlanta, and Orlando, Florida — normally a tantalizing proposition for the investors who have committed tens of billions of dollars to acquire homes en masse and capitalize on rising rents.
The portfolio, however, gathered no bids, at least none that were deemed realistic. The seller, represented by the real-estate investment bank Eastdil Secured, decided to wait to test the market again at a later date, people with knowledge of the marketing process told Insider.
The market for single-family-rental portfolios, once red-hot, has slowed considerably as the biggest participants face higher borrowing costs and market volatility. Investors, who say they’re still bullish on the industry, have scaled back their acquisition pace for the moment. Meanwhile, sellers are unwilling to sell at lower prices, and many have decided to hold onto properties, hoping that they’ll get their asking price in the coming months or in 2023.
“There’s a lot of stuff that’s just sitting,” one person with knowledge of the Resicap marketing process said, requesting anonymity to protect business relationships.
To be sure, there were factors that complicated the Resicap-managed portfolio. For one, more than half of the homes were still under contract to be purchased or hadn’t been renovated yet, delaying income for a buyer. But those issues would have been less of a deterrent a year ago, when competition was ample and borrowing was cheap.
The challenges aren’t limited to big SFR portfolios. Mid-sized portfolios of 50 or so properties are also trading at discounts compared to what they could have gotten at the start of the year, said Tejas Joshi, the director of single-family rentals for the investment firm Yieldstreet, which has poured roughly $200 million into SFR and owns about 600 homes, with another 150 currently under construction.
“If I’m trying to buy homes, I need to project, or have confidence in, how much home-price appreciation I will see in these markets in the coming years, because all of my monthly rental income is going to go toward servicing debt,” Joshi said.
With the housing market in flux and debt more expensive, portfolios of all sizes become “much riskier” to purchase, Joshi added.
Big investors with thousands of homes in their portfolios bear little resemblance to individual homebuyers. But the slowdown in SFR transactions mirrors the dynamics in the broader real-estate market, as buyers find they have more negotiating power amid softer demand.
Some of the biggest SFR landlords have made it clear that they’re being more selective with their purchases as a result of higher interest rates.
American Homes 4 Rent, which owns almost 60,000 rental homes across the country, recently slashed its expected purchase volume this year by $200 million, a 22% reduction from projections made earlier this year. The plans changed in anticipation of more attractive deals later this year, the company’s CEO, David Singelyn, told analysts during the company’s second-quarter earnings call in August.
“Interest rates have risen while home prices have yet to react in a meaningful way,” Singelyn said during the call. “In addition, these are uncertain times in the capital markets.”
Invitation Homes, which is one of the largest SFR operators in the US and manages about 85,000 homes, has taken “a little bit of a cautious approach” to acquiring properties this summer, Dallas Tanner, the company’s CEO, said during its second-quarter earnings call in late July.
“We think there could be some even better buying opportunities toward the end of the year,” Tanner said.
In August, Home Partners of America, a Blackstone subsidiary that owned more than 17,000 rentals as of last year, said it will pause home purchases in 38 of the more than 80 markets in which it operates. The company said on its website that it factored in home-price appreciation, state and local regulations, and market demand when deciding which cities to temporarily abandon, and a Blackstone spokesperson added that the paused markets represent “less than 5% of our recent activity.”
Expect this to be a temporary lull in transaction activity rather than a prolonged retreat on the part of buyers, however. Deep-pocketed investors still believe strongly in single-family rentals, and they’re gearing up to keep spending heavily on home acquisitions in the future. Deals are still getting done, too — one SFR portfolio traded in August for a little more than $140 million, according to a person with knowledge of the deal.
Some buyers are continuing to plow ahead despite the higher interest rates. Tricon Residential, which owned more than 33,000 single-family rentals as of June 30, said it planned to buy 3,600 homes in the second half of the year. The company originally expected to purchase more than 8,000 homes this year, Gary Berman, Tricon Residential’s CEO, told analysts during the company’s second-quarter earnings call in August. Now it’ll probably just hit the 8,000-home mark, which represents only a slight pullback, he said.
Like regular homebuyers, Tricon has been flexing negotiating muscle that it didn’t have a year ago.
“We find ourselves pivoting from making offers at a premium to list price to now offering below list price,” Berman said, “and still being successful in our purchases.”