Perspective

2020 Has Been a Year of Adaptation and Expansion

• by Peter DiLello
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Using Your Core Values for Record Performance by Peter DiLello Investing in real estate demands constant adjustments to factors outside our control. That has been particularly true this year, as the world confronts a global pandemic. At Invitation Homes, we spent the early days of the COVID-19 pandemic adjusting our practices and protocols to protect our residents and associates and developing programs to assist residents in financial distress. However, by summer, we realized the pandemic was not impacting the bulk of our residents financially. Instead, it was fueling demand for the single-family homes we own. Now, we are at the cusp of a major expansion that few outside our company would have predicted in the depths of March or April. Adaption was a major theme for Invitation Homes this year. Late in the first quarter, Invitation Homes made the intentional decision to pause acquisitions and prioritize the safety of our residents and associates. We strive to be the best operators in the industry and have offered a variety of options for residents confronting financial hardships, working with many to find the best solution for each situation that will keep them healthy and in their homes. The steps we took are central to our company’s core values, and part of the reason we experienced a record-high occupancy of 97.8% in the third quarter. Invitation Homes’ strong financial footing has left the company in the best position to respond to resident needs and deploy a growth-minded approach moving forward to meet the desire for single-family rental homes. During our acquisition process, we consider many of the same factors as first-time home buyers: optimal layouts, quality appliances and close proximity to good schools, parks, and employment centers. That last factor—“location, location, location”—is the single most important for any real-estate investor whether you are an individual owner managing several properties or a large company managing many. Location, Location, Location At Invitation Homes, “location” has two meanings: the neighborhoods where we like to buy homes and the regions of the country in which we choose to deploy our capital. We spend a lot of time considering both meanings when we buy new homes. Regionally, we consider migration patterns to determine where in the country to invest. We tend to buy homes in competitive areas where people are moving. This often means the Sunbelt, or “The Smile,” those states stretching from the Carolinas down to Florida and across the Southeast and Southwest to California. These markets are desirable because they continue to grow faster than the country as a whole, thanks to a population shift to affordable, less-dense markets with diverse economies. This consistent population shift continues to drive demand for single-family rental homes across the Sunbelt and helps explain the resilience of these housing markets throughout the pandemic. In Atlanta and Phoenix, REITs reported 8% and 12% growth on new leases in the third quarter of 2020, respectively. And geographic winners according to multiple sources—REIT commentary, John Burns Real Estate Consulting’s quarterly Single-Family Rental Market Index survey, and population growth trends as of September 2020—include Arizona, Nevada, Texas, Georgia, Colorado, and Florida. Housing Trends A recent survey of 175,000 institutionally managed single-family homes across 55 markets found that 59% of new single-family rental residents are relocating from urban locations. The same survey also observed that 32% of new single-family rental residents are moving from apartments, and 46% are coming from similar rental properties, leading to the conclusion that the industry is not gaining massively from apartments but is instead benefitting from better locations that provide value for people who prefer to live in a lower density, detached home. From our own survey sent to new residents who moved into our homes during the third quarter of 2020, we learned that the need for more space is the number one reason for moving into a single-family home, with 34% of respondents saying it was their primary motivator. Throughout the acquisition of new properties, Invitation Homes prioritizes high-quality homes that meet the evolving needs of residents. Even before the pandemic, our ideal home had three bedrooms with two baths, an attached parking structure, and was somewhere between 1,700 and 2,400 square feet. Establishing this standard early on has ensured that the floor plans of our homes are convenient and meet the lifestyle needs of our residents, positioning us well as housing trends change. Despite the pandemic and resulting recession, demand for single-family homes remains historically strong, by some measures. Resale homes are sitting on the market for just 21 days, an all-time low, according to John Burns data. Bidding wars are now common, with each sold home averaging 3.4 offers, up from 2.1 a year ago. We expect low interest rates, tight housing supply, rising home equity and continued price appreciation to fuel a continued boom in the resale market through next year. Home prices in some top single-family rental markets are climbing more than 10%, year-over-year, including Phoenix (15%) and Tampa (13%). These fundamentals are driving demand among single-family rentals, as well. Occupancy rates are touching all-time highs in a number of REIT markets and rent growth on new leases on single-family homes is up 3.8% year-over-year, according to the Burns Single-Family Rent Index. New Influx of Capital That insatiable demand for single-family homes in multiple markets continues to stoke investment that is keeping the industry hot. Outside investors are realizing the value in the industry as residents continue to show desire for the flexibility single-family rentals offer. Invitation Homes recently announced a $375 million joint venture with Rockpoint Group, L.L.C. to expand our portfolio, American Homes 4 Rent raised $625 million through a joint-venture with JPMorgan’s asset-management arm, and a former Colony Capital Inc. executive is raising $1.2 billion in equity and debt to build 5,000 rental homes. This influx of capital is not a surprise to those of us who have been in the industry from the beginning. Housing is a universal need, and Americans are increasingly drawn to the flexibility of renting,