CHARLOTTE, NC — Build-to-rent (BTR), or purpose-built neighborhoods with single-family homes for rent, have become an emerging subsector of the multifamily housing continuum in recent years. This housing type fills a niche for renters by offering more living space and privacy than traditional apartments, but is more affordable and comfortable than for-sale homes.
The rise of the BTR sector began in the early years of the COVID-19 pandemic, when a confluence of factors – the rise of work-from-home and hybrid work models, an increase in household formation among younger millennials, the desire for more privacy such as garages and backyards – led to a sharp increase in demand for single-family homes for rent.
The reason for the increased demand for BTR housing is the unaffordability of homeownership for a large portion of Americans. According to Harvard’s Joint Center for Housing Studies, home prices are 47 percent higher in mid-year than they were in early 2020. Homeowners insurance premiums have also risen sharply in the recent past – by 21 percent between 2022 and 2023, the study found. At the same time, mortgage payments are increasingly unaffordable, as interest rates have also risen dramatically in recent years.
For these reasons, institutional investors are actively participating in BTR’s growth story. Perhaps the most notable example is Blackstone’s $3.5 billion acquisition of Tricon Residential, taking the Toronto-based company private. In addition to the grassroots acquisition announced in January, Blackstone said it would invest $1 billion to continue Tricon’s BTR home development pipeline.
The first BTR project Tricon has completed since the acquisition was a 161-unit residential community in the Sacramento suburb of Lincoln, California, called Tricon Twelve Bridges. The property, developed in partnership with Sares Regis, includes both single-family homes and townhomes, as well as a swimming pool, clubhouse and common areas.
In addition to the Blackstone-Tricon news, Pretium Partners is raising $1 billion in a new fund to acquire BTR homes, and Charlotte-based Crescent Communities announced it is raising $235 million with Heitman to develop BTR properties in 14 markets. The new communities will operate under the Harmon by Crescent Communities brand.
“We’ll do four deals with them in Dallas, Phoenix, Greensboro (North Carolina) and Nashville, and then we have room to potentially do one and two more with the intent of investing for the long term,” said Tony Chen, senior managing director of Crescent Communities. “Building a (BTR) portfolio of great significance has always been our goal within this platform.”
Chen added that BTR is still in its infancy as an institutional real estate sector.
“BTR is still a development process,” he said. “And it will continue to be that way as more and more capital flows into the field.”
Chen’s comments came during the BTR/SFR panel at InterFace Multifamily Carolinas, an annual conference held May 22 at the Hilton Charlotte Uptown Hotel. Hosted by the InterFace Conference Group and Real estate business in the SoutheastThe event attracted 272 attendees. John Currin, Senior Vice President of Investment Sales at Northmarq, moderated the panel.
Increasingly sophisticated
Although the BTR space is still in its early stages, it is evolving in interesting ways, according to panelists. Chen said the previous phases of the sector were oversimplified from a product delivery and operations perspective.
“From 2018 to 2021, everyone just said, ‘The amenity is a house with a garden,'” Chen said. “That’s just not what we believe anymore.”
The panel included executives from several companies that own and/or operate both multifamily and BTR, including Greystar and RangeWater Real Estate. Lisa Taylor, senior managing director of SFR and BTR at Greystar, said that with new BTR projects, parking may be one of the things that goes under the radar.
“People have cars, so a single-car garage for a three- or four-bedroom home in a community with limited outdoor parking or no on-street parking is going to be a challenge,” Taylor said.
Even more important is location, says Marcie Williams, CEO of RKW Residential, which manages both traditional multifamily and BTR projects. She noted that blocking and managing operational processes for prospective tenants is the second most important priority, with a focus on optionality, on-demand customer service and frictionless experiences.
“I’m optimistic about the future of the BTR sector as long as we can continue to provide the value that tenants are looking for,” Williams said. “Our BTR rents are almost 20 percent higher than our multifamily rents. And everyone still wants service, but it’s how we deliver the service that matters, whether it’s technology or personal touches. We want to make sure we give them what they want, when they want it.”
Overall, the BTR sector has more in common with the traditional multifamily sector than previously expected. Timothy Graul, vice president of acquisitions and investments at Bluerock, said multifamily stakeholders are better dance partners for BTR investments and developments than traditional single-family homebuilders.
“We’re having more success working with multifamily developers who switch to BTR. They just have a better sense of what the customer needs and are able to close the deal,” Graul said.
He added that multifamily developers have more experience with the nuances of today’s capital markets environment compared to traditional single-family homebuilders, which is why companies like Bluerock are one step ahead of their competitors in the multifamily sector when it comes to financing BTR projects.
“Capital wants to be in BTR, and it’s much more familiar to invest with someone who has done this in the multifamily space,” Graul said.
Chen added that while there is a natural cross-pollination between the traditional multifamily sector and BTR, there are some fundamental differences to keep in mind, namely the physical aspects of BTR communities.
“(Crescent Communities) mostly only builds three- and four-bedroom homes with attached garages, so we believe it’s a different product and a different customer demographic than multifamily. That’s how we protect our risk,” Chen said.
Breaking new ground
Northmarq’s Currin mentioned in one of his questions to the panel that a recent survey of BTR renters found that the demographics of the BTR cohort were fairly evenly split across four categories: young couples and couples whose children have left home; young families with children; older families with children; and older couples without children.
Understanding the “four legs of the barstool” of the BTR cohort comes at an ideal time, as development in the BTR sector is in full swing. According to data from RealPage Market Analytics, there are nearly 120,000 BTR units under construction nationwide through May 2024. As for hotspot regions, developers in the South and West are leading the way, together claiming about 88 percent of the pipeline.
The South Region alone, which includes Texas, accounts for 64 percent of the country’s BTR units under construction. The South’s pipeline includes a total of 76,674 BTR units scheduled for completion by the second quarter of 2027, including properties leased during construction. The West Region has a total of 28,618 BTR units under construction, scheduled for completion by the third quarter of 2026.
Hines is working on the next phase of a $200 million BTR project in the Charlotte suburb of Pineville, NC. A fund sponsored by the Houston-based investor and developer recently acquired the gated community, called Blu South, which includes 341 recently completed homes and 210 more under construction. Hines estimates Blu South will be fully completed by the third quarter of 2025.
Chase Davidson, RangeWater’s manager of BTR and capital markets, said the Atlanta-based company is focused on providing a wider range of equipment types in its BTR projects in the future.
“One of our projects in Atlanta has 56 single-family homes and 100 townhomes,” Davidson said. “Offering everything from entry-level homes to homes suitable for a large family in the same community has resulted in above-average absorption.”
Graul added that knowing the housing stock in a given market is critical to creating new BTR offerings.
“You can’t string townhouses together 30 miles outside of the city,” Graul said. “If all the houses within a three-square-mile radius are single-family, you probably have to have some form of single-family housing.”
Panelists agreed that the sector remains in a Goldilocks position when it comes to future demand for BTR housing, offering flexibility, amenities and affordability compared to traditional multifamily and single-family housing.
“The diversity of the tenants shows that people want to live in these properties and that is unlikely to change,” says Graul.
Taylor added that BTR is a relative newcomer to the multifamily housing industry and therefore education for both the general public and prospective tenants continues to be a major obstacle to closing deals.
“One of the biggest challenges is getting the word out to the public and potential residents that a particular project is a rental property,” Taylor said. “Signage is very important, so we make sure the developer doesn’t have any restrictions (on signage) when we buy Phase IV or V of a project.”
—John Nelson
