Investment firm GTIS Partners has spent the past decade in the wake of the Great Recession accumulating a portfolio of individual single-family rental homes. Now it's selling off those houses to turn to what it expects to be a faster-growing nationwide rental area the coming decade: planned neighborhoods of rental homes that are luring commercial real estate investors.
The New York City-based investment firm said it's parting with 1,081 single-family rental homes scattered throughout Atlanta, Georgia, and Nashville, Tennessee, for $300 million. The move reflects the disposition of substantially all the homes it bought in the wake of the Great Recession. GTIS sold 2,630 homes to institutional buyers for about $400 million in less than four years as an additional 376 homes have been, or are being, sold.
“Institutional investor interest in the asset class has gained momentum, and we continue to see strong consumer demand" for single-family rentals, Tom Shapiro, president and chief investment officer at GTIS Partners, said in a statement.
The company is joining other builders across the United States in the wake of the pandemic trying to lure buyers who like the option of moving quickly and avoiding a down payment and closing costs.
In the case of GTIS, it's pivoting its single-family rental strategy to address the changing demographics of those attracted to the property type. Instead of buying prebuilt houses on an often individual basis in different neighborhoods, GTIS plans to develop its own single-family rental homes in dedicated, master-planned communities as house prices rise.
GTIS said its new development-focused strategy better caters to the young adults and aging renters who are drawn to single-family communities with dedicated amenity centers and centralized property management. Planned rental house neighborhoods provide those perks, which are often considered among the benefits of apartment living, while offering the more spacious interiors and exteriors of houses without the cost or permanence of a mortgage.
The company is developing seven single-family rental projects in Phoenix, as well as in South and Central Florida, that total 1,370 units. The collective development cost is roughly $340 million, the company said.
GTIS Partners began buying houses for rentals after the 2008 recession, when housing prices bottomed out and it was extremely cheap to scoop up homes, either in foreclosure or for pennies on the dollar. It was one of scores of companies that started their single-family rental businesses after the housing crisis because the cost of entering the business had plummeted so significantly.
It has since owned or managed more than 4,700 rental homes throughout nine cities. As the market recovered and home values rose, the company has been selling off its single-family rental investments.
Shapiro described the current market as being “in desperate need of new, high quality supply."
Single-family home prices are higher than ever and more young adults are migrating toward the suburbs, a trend supercharged by the pandemic as people sought more space. Many are increasingly finding rental houses offer private and spacious living arrangements without the high costs of owning a property.
Even before the pandemic, the single-family rental market has been booming. Between 2000 and 2020, the inventory of single-family rental homes and multifamily rental units grew 26%, compared to owner-occupied single-family homes growing 21.2%, according to DBRS Morningstar, which analyzed U.S. Census Bureau data.
It comes as the nation has been facing a worsening housing affordability crisis, especially as high debt levels and stagnant wages put mortgages out of reach of many potential buyers.
The average household with student debt owes $57,520, according to NerdWallet, a personal finance company. The minimum wage, which also influences wages that are paid above it, hasn’t been changed since 2009, when it was raised from $6.55 to $7.25 per hour, according to the U.S. Department of Labor.
Meanwhile, the U.S. median home price has grown to roughly 4.29 times the U.S. median income, up from 3.27 times in 2011, the report said.
Those dynamics are expected to fuel the single-family rental market for years to come.