Episode 55: The State of Institutional SFR Investing with Guest, Green Street Advisors

This week’s episode of The Investability Podcast features industry analyst, John Pawlowski of Green Street Advisors. The firm is a provider of real estate data and analytics, tracking overall real estate market conditions. John’s focus includes coverage of the apartment and single-family rental market sectors. Working closely with large REITs in the space, John offers valuable insight into current trends as well as predictions on where the space is headed.

Because single-family residential rental properties are still a relatively new asset class for the larger institutional players, they are entering the space with caution. The lack of historical knowledge tends to result in a more conservative take on the asset class, especially because it's difficult to truly anticipate capital expenditures. Even with the hesitancy however, John says SFR investing offers a favorable near-term outlook as it continues to outperform all other REITs and as home prices continue to appreciate. That said, as Dennis has remarked in the past, if rents do not rise with home prices, yields will begin to compress. Declining cap rates could push the larger institutions back to investing more heavily in apartments and multifamily units rather than SFR.

Dennis asks John how he’s seen the space evolve and what changes may be on the horizon. Without doubt, technology has played an integral role in the institutionalizing of the SFR space. As large investors continue to transact in single-family residential investing, advances in technology, some of which has been transferred from multifamily operations, have cut costs and improved efficiencies. Through the optimization of drive times, creation of centralized call centers, and new property showing techology, there are significantly less people in the field and on the corporate side.

The show wraps up with discussion around the strategy of larger investors in the space. They’ve moved into higher yielding markets like Atlanta, Phoenix, the Carolina’s, and Nashville for acquisitions. We’re also seeing consolidation in the space, as demonstrated with the recent merger between Invitation Homes and Starwood Waypoint. The firm has combined high quality talent and operations, creating higher scalability within the sector as a whole. While the space remains largely held by small mom and pop investors, the big guys are seeing opportunity too great to ignore. Even Fannie Mae and Freddie Mac are dipping their toes in, waiting to see what the space holds.

PodcastMichael Shai