Wall Street's zest for a corner of suburban real estate long left to small landlords is reaching new heights, attracting institutional investors, homebuilders and apartment managers during a pandemic that has ignited demand for larger homes.
The pension manager for the Canadian Mounties is the latest investor in single-family rentals, joining JPMorgan Chase & Co.'s asset-management arm and Nuveen Real Estate in a bet that there are lots of Americans who want spare bedrooms and backyards, but don't have cash for down payments.
Lennar Corp., the largest U.S. homebuilder by revenue, is preparing to make a major push into rental homes. Greystar Real Estate Partners, the largest property manager in the U.S., is currently managing roughly 1,500 homes. That number could grow to 25,000 homes.
Small landlords still own the vast majority of single-family rentals, but companies such as Invitation Homes Inc. and American Homes 4 Rent have demonstrated that large portfolios of rental houses can be operated as efficiently as apartments.
Instead of hunting for homes on the open market, many investors have backed developers like Hunt Cos., which owns more than 136,000 apartments. That has helped rental builders gain share in markets including Phoenix and Salt Lake City.
The investment influx has also pushed prices higher for larger portfolios of houses. Front Yard Residential, which owned roughly 15,000 rental homes, agreed to sell itself for $12.50 a share last February, only to see the deal scuttled by the pandemic.
A partnership led by investment firm Pretium agreed to buy the company in October, but was forced to raise its offer to $16.50 a share to top a competing bid.
There are limits to the convergence of homebuilders, apartment landlords and institutional capital. Builders have plenty of interest from individual buyers these days. Most real estate investment trusts that specialize in apartments still believe that they are in a different business than single-family landlords.
Others, however, see the logic in companies offering tenants everything from downtown apartments to suburban homes.
"I've thought for a long time that eventually we should see companies focusing on rental housing broadly, owning both houses and apartments that could be offered to tenants," said Gary Beasley, chief executive at Roofstock, a platform for acquiring single-family rentals.