Consolidation on the Cards for Single-family Rental

The need for access advanced technology will likely drive consolidation in the single-family landlord sector, cutting the market from six to seven large players today, to just three or four in the next few years, according to a senior executive at a single-family rental GP who spoke to PrivcapRE. After a period of supercharged activity in the sector (Blackstone alone in 2012 said it was spending $100M a week purchasing single-family assets), the big landlords are buying fewer homes each quarter compared to one year ago, as values has risen and foreclosure numbers have fallen, they remain committed to strong growth. Most are turning to the debt markets and securitization of rental income to finance future acquisitions. However, access to technology also is a key concern. “One of the things that has become clear and continues to become clear over time, this is a business of scale and it’s largely driven by technology,” the investment manager, who declined to be named, said. “This industry is brand new and the technology to do business efficiently and with scale doesn’t exist so you have to build it yourself. That’s expensive and doesn’t make sense for a company with $100M capital under management.” Take for example the largest publicly traded landlord, American Homes 4 Rent. It manages a portfolio of more than 26,000 homes, in 41 markets across 22 states. It has internal property managers in 28 markets, and uses third party management across the remainder. It works with more than 3,000 contractors to deal with renovation, maintenance and regular inspection of its homes, operates a resident portal and maintenance hotline, collects monthly rent and evicts tenants when needed. And that’s just for managing the assets. It also has 750 URLs driving potential tenants to its website and has developed proprietary systems for sourcing, performing due diligence and bidding on tens of thousands of new properties each quarter across existing and new markets through foreclosure auctions, portfolio sales and multiple listing services. As a result of the need for access to this kind of technology, the investment manager who spoke to PrivcapRE predicted the single-family rental industry would consolidate around three or four large names, with Blackstone’s Invitation Homes, American Homes 4 Rent and Colony Capital’s Colony American Homes taking the top three spots. The battle for fourth position will be hard fought and closely watched.