Capital Influx Drives Specialization in Multifamily

March 8, 2022

Capital Influx Drives Specialization in Multifamily

March 8, 2022

The rise of the single-family rental (SFR) and build-for-rent (BFR) space in the last 18 months has been the hottest topic in the housing industry. Everyone from public REITs to private investors to family offices and institutional funds are looking to understand the role SFR/BFR can play in real estate allocations and how to create value.

While we too are diving deep into the space on behalf of our clients, we’ve also taken a step back to recognize how the relatively rapid rise in popularity of SFR/BFR (we financed our first scattered-site SFR property in 2012) has highlighted the increasing importance of asset specialization within housing. Of course, the need for sector specialists is nothing new. Student housing, manufactured housing and affordable housing have long been recognized as niche categories that benefit from dedicated expertise, but as the housing market continues to see an incredible inflow of capital in 2022, specialization has become more important than ever to ensure investors can identify and capitalize on a diverse set of opportunities to meet their specific portfolio needs and drive attractive risk-adjusted returns.

But why? We see a few key reasons:

Accommodating sophisticated needs

Much like how CRE is an alternative asset strategy in its own right, the housing market itself has become more segmented as the sector, and the investor pool, has become more institutionalized. Investor interest has reached an all-time high and each investor type brings its own business plan and special sauce. Even within a specialized sector, opportunities are not one size fits all. While private clients may have a greater appetite for risk, institutional investors look for more validation when pursuing a new asset type. Specialization affords investors more tailored insights and advice to truly understand how a particular segment of housing can propel overall strategies.

Adapting to evolution

The past year has highlighted how changing demographic patterns and consumer preferences can dramatically, and swiftly, impact the housing market. Work-from-home decrees precipitated a shift in renter preferences for more space, and as a result we witnessed a significant increase in both renter and investor interest in secondary markets across the Southeast and Southwest. Today’s market subtleties require investor to be discerning albeit agile, responsive and informed on how macro trends—population growth, household formation, income growth—and micro influences—socio-economic shifts, regional appetites, regulatory changes—affect unique sectors. Specialization affords investors greater flexibility to changing market conditions in order to avoid pitfalls and capitalize on opportunities.

Looking ahead

As mentioned above, we did our first scattered-site SFR financing in 2012. At the time it was an arduous process to educate partners, anticipate complications and ensure a smooth and successful transaction, but we recognized that it was segment that had legs. That knowledge set us on a path of deeper understanding of the demands and nuances of SFR transactions, which has positioned us to be a more experienced and informed advisor to clients in today’s market, where investors are trying to understand pricing, long-term potential and what’s required to successfully execute and deliver at a rapid speed.

Committing resources to the needs, attributes and requirements of a specialty helps us better distinguish emerging sectors, (like SFR/BFR) from flash in the pan trends (think micro units or pre-fab housing) and anticipate how to advise clients appropriately.

The housing sector continues to evolve—it’s what keeps our work exciting and our market dynamic as ever. Successful investors are those that are more secular in defining and executing strategies by taking advantage of the full lifecycle of opportunities.

-Dori Nolan, SVP, Client Services