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Single family rentals could grow to 10% of all institutional capital

NAREIM Asset & Portfolio Management Meeting: Key takeaways

June 8-9, 2022

Single family rentals could comprise up to 10% of all institutional investment in residential units in the US.

During the NAREIM Asset & Portfolio Management meeting in NYC this week, members dived into the challenges and opportunities of alternative property type investments – digging into single-family residential, manufactured housing, medical office and life science case studies.

Currently, single family rentals (SFR) comprise just 2% of all institutional capital targeting residential properties. The majority is targeting multifamily, but NAREIM members heard that an allocation of between 5% and 10% could be likely in the medium-term – and made sense for investment management portfolios.

Alternative highlights: Cap-ex & operational intensity

SFR case study:

  • Typical cap-ex of $5,000-$10,000 per unit, bringing in smart features, fixtures, etc - with a turnaround time of 45-60 days. Tenants typically stay in the home for 2.5 to 3 years.

  • Rent growth: You cannot increase rents 15% annually, members were advised – the headline risk of bad publicity was not something many managers had an appetite for. Tenants are on fixed incomes and increases keeping pace with expenses (around 3-5% pa) were typical. The spread between multifamily and SFR is now around 125bp.

Manufactured housing case study:

  • It is exceptionally challenging to find a good manufactured housing (MH) operator, but it’s an industry starved of capital and where new MH parks are largely not being entitled. “The supply pipeline doesn’t exist.” Just 10-15 new parks have been built over the past decade.

  • Cap-ex: $1m into a new park is a major investment and most of the upgrades relate to resurfacing blacktop, updating pools/pool furniture and creating/updating community features.

  • Renters are “incredibly stable” and MH has low operational intensity compared to traditional asset classes.

  • Margins are getting thinner and the spread to multifamily was at its narrowest in years. Headline risk is a major issue in MH, with renters on low, fixed incomes. “We are not driving for 20-25% returns with MH,” said one member.

Life science & medical office case studies:

  • Medical office: Deal sizes are challenging for all alternative property types, not least life science and medical office, so you need to be creative on the op-co/prop-co equation

  • Life science: It’s a volatile market given the venture backing of most tenants, and you’re signing 10-year leases when tenants may exist only for 2-3 years. It’s critical therefore for a life science asset to be easily repurposed if (and when) tenants change. TIs tend to be in the $20psf

To download the meeting presentations and attendee list, click here.


ESG and DEI were top of mind for asset and portfolio managers attending the meeting this. The most critical component though wasn’t the journey to Net Zero or decarbonization, it was change management and internal data challenges.

“It’s not the act of doing ESG,” said one member. “It’s the fact that people have to get comfortable with this. We need formal procedures [internally] with sustainability risk frameworks that highlight the duties of each role [within the firm].” The member added at their firm such a framework had been adopted by the investment committee and so embracing ESG within the life cycle of every day was now no longer “negotiable”.

Other issues top of mind for members included:

  • Collecting and aggregating ESG data – and understanding how to use the data to drive ESG and NOI performance

  • Outpacing peers in relation to ESG maturity and actions

  • Keeping pace with regulations at the state and city-level

  • Net Zero and decarbonization – and the challenges of asset obsolescence

  • Responding to allocating capital to solve the housing crisis

Key highlights from the meeting also included:

Construction pricing and supply chain challenges:

  • Members discussed challenges of locking pricing in supplies and materials, the challenges of pre-buying materials and storing inventory – as well as how much managers allowed price escalation clauses on contracts.

  • One member said they did not allow escalation clauses on sub-contractors, but were more willing to talk to operating and development partners when requests were made relating to scope movement, labor and supply issues outside the party’s control and market bids returning at a higher level than budgeted.

PropTech: Climate technology presents some of the most interesting proptech targeting the CRE sector, the meeting heard. Among the technologies highlighted during the meeting, were:

  • Brimstone Energy: carbon-negative Portland cement

  • SOURCE Water: drinking water extracted from the atmosphere through hydropanels, providing alternative worksite water sources

  • Turntide Motors: drop-in solution to optimize existing building mechanicals and use 40-60% less energy

During the meeting, members were asked for the top 3 issues on their mind. Other issues raised included:

Market trends: Demand for key property types is constantly in a state of flux. Each property type has a cycle. Members agreed these were the areas of focus:

  • Cap rate expansion: Costs, inflation and interest rates were a major concern for all members, especially in multifamily and industrial assets. Rental growth will slow, but to what degree? How do you balance the need to invest capital in a negative leverage landscape, not least in sectors such as multifamily? Price discovery in extreme markets

Office & Return to Office:

  • Deal-specific: Impact and consequences – from the deal perspective – of return. Where will demand for office settle and how do you asset manage office properties in the short to medium-term?

  • Deal-specific: Aging properties and cap-ex requirements, particularly amid today’s ESG push

Retail: Does it present the best risk-adjusted returns to date?

Talent & Process: Without your people, you are nothing. And that’s especially true post-Covid, with the pace of work as frenetic as in 2020 and staffing a major issue of concern for all functional groups. Issues top of mind for members included:

  • How does REIM become attractive as a potential career to students?

  • Return to office: How do you manage corporate employees and Asset & Portfolio Management processes in a flex/hybrid world?

  • How does REIM use automation and AI to mitigate today’s hiring challenges?

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