By Konrad Putzier
Big foreign investment firms that buy office buildings, hotels and shopping centers around the world have a new favorite real-estate play: single-family homes in American suburbs.
These institutions are partnering with U.S. housing companies to buy or build rental homes by the thousands. In suburban neighborhoods near cities such as Atlanta, Las Vegas and Phoenix, blocks of families are sending monthly rent checks to ventures backed by Canadian pension funds, European insurers, and Asian or Middle Eastern government-run funds.
The overseas investors are following in the footsteps of many big U.S. investment firms and pension funds, which started buying single-family homes on a large scale in the aftermath of the financial crisis.
Foreign investors barely registered in these markets a few years ago. Now, they account for nearly a third of institutional investment in single-family rental homes, said Alex Foshay, head of international capital markets at real-estate services firm Newmark.
"There's been very limited overseas investment into the single-family rental space prior to Covid, but nothing on this scale," he said.
German insurer Allianz SE last month said it is investing in a venture to buy more than $4 billion of U.S. rental homes. Singapore's sovereign-wealth fund GIC is backing plans by Quinn Residences to buy single-family rental homes across the southeastern U.S., according to people familiar with matter.
Canada's Public Sector Pension Investment Board, meanwhile, said in January it agreed to a $700 million rental-home venture in partnership with Pretium Partners LLC. The venture has bought around 2,000 homes, said Pretium Chief Executive Donald Mullen. Foreign institutions have also invested in the Pretium's funds targeting single-family rental homes, he added.
The recent growth of foreign investment means that individual home buyers must increasingly contend with this deep-pocketed group of purchasers in a number of prime U.S. neighborhoods, boosting prices there and adding more fuel to a housing boom that is already the hottest in 14 years.
Foreign investors are attracted to the single-family-home rental market for many of the same reasons that U.S. investment firms are. There is a limited supply of new houses and the strong demand for homes in the most desirable suburbs with top schools has led many families to rent if they can't buy in these neighborhoods.
The sector became even more attractive amid the pandemic and remote work, when more young professionals turned to the suburbs for greater space. At the same time, Covid-19 has upended the businesses of office buildings, hotels and retail real estate globally, making U.S. housing gains look even more attractive by comparison.
An index measuring rents and occupancy rose by 5.7% last year for single-family rental homes while it fell for the real-estate industry as a whole, according to Green Street. Pretium's Mr. Mullen said that rising inflation expectations make single-family rentals more appealing, too, because unlike office leases, home leases reset every year and rent is more closely tied to consumer prices.
Foreign investors are also buying more single-family rental homes because it has become easier for them to do so. A decade ago, some big U.S. firms and financiers bought foreclosed homes by the thousands. But as the foreclosure crisis wound down, the main way to directly invest in these properties was to hire a broker and buy them one by one. That process was too tedious for big insurance companies, sovereign-wealth funds and pension funds, which usually want to invest large sums of money with as little effort as possible.
Today, more U.S. real-estate companies and Wall Street firms are buying in bulk or building single-family rental homes specifically for rentals, allowing foreign investors to back them with large sums of money.
Home builder Lennar Corp., for example, recently launched a venture to buy single-family rental homes across the country. The company said it already has commitments from investors for $1.25 billion and will use that to buy $4 billion worth of homes. A number of these investors are based or affiliated with companies abroad, say people familiar with the matter. That includes Allianz Real Estate, a subsidiary of the German insurance giant, which said it committed $300 million.
In the U.S., Allianz had focused mostly on office skyscrapers in big cities, which tend to be easier to buy and sell. It then branched out to warehouses and apartments. The firm started discussions with Lennar about the venture in early 2020.
Unlike a decade ago, when investors bought foreclosed homes and those already occupied, the focus is now on newly built properties. "The lack of institutional ownership just shows you how difficult it is to get into the market," said Christoph Donner, who heads Allianz Real Estate's North America business.
Roofstock Inc., which lets customers buy rental homes through an online platform, said visits to its website from Canada are up 80% over the past year. Visits to the site from Mexico jumped 140%. The company is in talks with foreign investment funds interested in buying properties through its platform, said CEO Gary Beasley.
Part of the appeal of single-family rental homes is that despite rising home prices, they are still considered less expensive to acquire than apartment buildings, even when the rental income is the same.
That is because for many years the only people willing or able to buy them were small investors, who often have to pay more for loans than big institutions, said Jeff Scott, a managing director at real-estate investment bank Eastdil Secured. But as more big institutions buy single-family homes, the discount compared to multifamily buildings is expected to shrink.
Investors are hoping that by buying now, they can benefit from a rising market. "There are large economies of scale still to be gotten for a professional manager," Allianz's Mr. Donner said.
Write to Konrad Putzier at firstname.lastname@example.org
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