Institutional investment in single-family rental (SFR) homes is on the rise and expected to grow dramatically over the next eight years, according to a new bulletin on the sector released by Yardi Matrix. However, rising interest rates are forcing investors to reassess the most effective strategies for growing portfolios and may contribute to lower near-term returns.
Institutions committed more than $60 billion to buying single-family homes over the past year, according to various corporate announcements and news articles.
Recent research by MetLife Investment Management (MIM) estimated that institutions own some 700,000 single-family rentals in 2022, about 5 percent of the 14 million SFRs nationally. MIM forecasts that by 2030, institutions will increase SFR holdings to 7.6 million homes, more than 40 percent of all SFRs. Institutional acquisitions of SFRs in communities of 50 or more units soared in 2021 to $2.5 billion, according to Yardi Matrix.
Institutional portfolio growth is currently focused on build-to-rent (BTR) projects or acquiring portfolios from smaller owners. BTRs are on track to deliver far more units in 2022 than in any previous year. More than 25,000 units are under construction and nearly 4,300 were already delivered in the first half of 2022, meaning the industry will easily surpass 2021’s record-high 7,705 deliveries.
“Rising home and mortgage costs in the second quarter of 2022 increased the cost of capital for institutional buyers, so the segment’s growth is likely to slow, and returns will moderate. Even so, the industry benefits from strong long-term demand drivers and the explosive growth in institutional capital,” Matrix analysts said.
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