Seizing the Single-Family Rental Tailwinds (Finally)
What Lessons Have Been Learned Over the Last Two Years by Luis Vergara We are entering a relatively unfamiliar yet anxiously anticipated period in our industry. For the better part of the last eight quarters (since Q4 2022), the atmosphere in the single-family rental (SFR) market can be described as risk-prone, transactionally dormant, and bereft of liquidity. During this timeframe, higher interest rates and financing costs and moderating rental rates tempered investors’ appetite for acquisitions and new development projects and shifted their priorities. THE AWAKENING Now, with the election over — and that element of uncertainty behind us — and the likely prospect of additional Federal Reserve interest rate cuts ahead, SFR tailwinds are finally beginning to emerge. That should assist in unlocking additional inventory to meet housing demand and spurring more new construction build-to-rent products while also reducing financing costs for leveraged investors. Moreover, the resilience in rents will be buoyed by the prevailing dearth of housing supply even in the face of inventory increases. These fundamentals are appealing to buy-and-hold, new build, and fix-and flip investors, as well as to their financing partners alike. This outlook also bodes well for the return of institutional capital to the private-label securitization market, thereby facilitating greater primary market liquidity. LINGERING REGULATORY RISK However, a cloud has surfaced over SFR in the form of proposed regulations that, if successful, could threaten to cause market disruption. Over the last year, a series of bills at both the federal and state level have been introduced with the intent to meaningfully restrict institutional investors’ ability to buy single-family homes. The two federal legislations, identified as End Hedge Fund Control of American Homes Act and Stop Predatory Investing Act, effectively aim to i) inhibit the number of homes that an investor can own and the associated tax deduction benefits and ii) introduce consequences for those exceeding those limits (exceptions do apply). The state level proposed laws have included efforts to curb investor ownership in California, Nebraska, North Carolina, and Minnesota. How credible is that threat? It is too early to tell where the new Congress and state legislatures will shake out on this topic and degree to which it will demand their attention. While the prevailing opinion is that the current federal legislation is unlikely to pass, a more reasonable alternative may garner support. At the state level, it would not be shocking to see select states embrace investor ownership curbing efforts. Nevertheless, any legislation passed will not be immediate and it will not inhibit SFR demand and investor interest. No decision will be made that causes mass displacement of tenants, destabilizes communities and markets, and inhibits the progress and efforts made to augment much needed housing supply. WHAT’S NEXT & WHO WILL BENEFIT? As the wind takes us in a new direction, what lessons have been learned over the last two years to ensure that we adjust our sails to capitalize on the tailwinds ahead? The respite in transactional activity and new acquisition opportunities led investors to spend more time evaluating their existing portfolios and internal processes to identify ways to their operations and optimize returns. Efforts to correct gaps and standardize processes that boost higher occupancy and collections rates while focusing on the tenant experience lead to increased renewals and reduce the vacancy and construction expense when a tenant decides to move. Investments in technology and data infrastructure to warehouse critical information and to build reporting tools have allowed for better communication flow and decision-making. Investors who have done the tough yet critical work to recognize their deficiencies and improve internally or to establish partnerships with service providers who can fill their internal voids and improve efficiencies will be best positioned to maximize returns and capitalize from the looming aperture in investor appetite for new acquisition and new construction opportunities. SOLUTIONS TO SUPPORT SFR At Guardian Asset Management (Guardian), we’re collaborating with lenders as well as institutional and smaller-scale investors to complement their internal operations and provide our infrastructure and comprehensive suite of secure and SOC 2-compliant core solutions to create efficiencies, optimize decision-making, provide market optionality, reduce costs, and enhance transparency and returns. We disrupt industry challenges by identifying workflow gaps and implementing solutions that leverage our technology stack, established network of partnerships, machine learning, and detailed analytics to determine optimal strategies both at the asset and portfolio level. Our ecosystem of integrated service verticals allows clients to track properties throughout the investment life cycle to ensure best execution at critical decision points. The following are key services and solutions that Guardian provides to the industry: Property Preservation & Inspection // Our nationwide network of 6,000+ fully vetted and constantly score carded vendors provide ongoing property preservation and maintenance services that include a full suite of inspection products, construction draw management, pool and lawn maintenance, HOA management and oversight, utility activation and management, among others—all integrated with Guardian’s service pillars. Construction Management // Across both coasts, our team of full service and licensed general contractors oversee, direct, and execute every aspect of construction, from the initial blueprint to the final touches. Our meticulous scoping process and quality control measures guarantee a detailed understanding of project needs and adherence to industry-leading standards. Efficient renovation and turn management, 24-hour maintenance, occupancy and permit management, eviction management, and insurance claim management are additional services at client’s disposal. Quality, efficiency, and reliability come included. Title & Closing // Our in-house team of experts offer a comprehensive suite of nationwide title services that facilitate the process of transferring ownership of a property and remove complexity and opacity to provide a clear understanding of risks and to facilitate efficient and smooth closings. Property Management // 24/7 maintenance, competitive management fees, rental consulting services, rent price analysis, tenant management, rent collection, applicant screening, attractive resident benefit packages, and marketing of vacant properties encompass our property management offering. Valuations & Innovative Adjusted Repair Value (ARV) Estimates // Guardian’s team of experienced and certified valuation professionals provide accurate, federal and state
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