Builders in hot pursuit of a new target: renters

The Avilla Suncoast development currently under construction in Odessa, Pasco County, sounds an awful lot like the standard new-home communities being built all over the region. The 152-home gated neighborhood will feature one-, two-, and three-bedroom single-family homes with private backyards, open floor plans, granite countertops and stainless-steel appliances. Community amenities include a resort-style pool and dog park.

But these new homes aren’t being built for sale. The entire community is being built by developer NexMetro Communities as single-family-home rentals, where rates will be comparable to a traditional Class A apartment.

Referred to as “built-for-rent,” the new residential housing niche first gained traction in states like Arizona and Texas. Builders and investors created single-family, home-rental communities, and, just like multifamily complexes, renters filled them up. Now with proof of concept, companies like Phoenix-based NexMetro Communities are coming to the Sunshine State.

“Florida has so many great demand drivers, like strong employment, strong growth, land availability and sites that are ideal for our product,” says Jacque Petroulakis, executive vice president for marketing and investor relations at NexMetro Communities, which has broken ground on the Odessa project, its first in Florida, and has two other projects in the region in pre-development. “It’s a strong market that has a lot of diversity in terms of opportunities. We’re very bullish on the greater Tampa area and are looking to other Florida markets as well.”

Another sign built-for-rent’s time has come? Housing economist Brad Hunter, who provides market research for builders, developers and investors through his West Palm Beach-based company, Hunter Housing Economics, used to do 10% of his market study work in the built-for-rent sector. Today it’s about 50%.

“I think Florida is on the cusp of a boom in built-for-rent, single-family homes, and I think there’s a very long runway in Florida,” he says. “There’s plenty of demand here. And if you look around the country, and you see some of the markets that have been building built-for-rent homes for years, especially out west, there’s still runaway left in those markets too.”

“Built-for-rent is going to double or triple in volume over the next the few years,” Hunter adds. “And there’s so much money being put into it for good reason.”

Why now?

One big driver of the growth in built-for-rent single-family homes? Millennials. Slow to start having kids, now that they’re expanding their families, they want more space than an apartment. They want a yard for their kids, and they’re ready to move to more suburban locations.

'I think Florida is on the cusp of a boom in built-for-rent single-family homes, and I think there’s a very long runway in Florida. There’s plenty of demand here.’ Brad Hunter, Hunter Housing Economics,

But purchasing a home can still be a challenge for many millennials, whether it’s coming up with the necessary down payment, getting approved for a mortgage or finding a home that fits their price range. That’s why single-family rental homes are appealing.

Shifting households used to living in a detached home also find single-family rentals a good fit. That might be empty nesters who want to downsize or a newly divorced individual with kids who’s in need of a new living situation. And some retirees like the flexibility that comes with renting. “They love the convenience of lock and leave,” Hunter says. “And renting allows them to try out an area to see if they like it or not.”

The pandemic accelerated trends already favorable for the built-for-rent single-family-home market. Renters desiring privacy and a rental with no shared walls were already being drawn to single-family rental homes. Now they’ve become even more attractive than a standard apartment building.

“Social distancing is a whole lot easier to do when you have a home where you can pull into your own garage and go through a door into your kitchen, as opposed to walking through a corridor with other people to an elevator in the lobby where you’re having to push buttons that 500 other people have pressed in the last 10 hours,” Hunter says.

Keep it simple

Renting existing single-family homes, of course, is nothing new. Wall Street titans, such as the Blackstone Group and Goldman Sachs, created funds in the previous recession that bought and rented thousands of single-family homes nationwide. Others are in that market on a smaller scale.

Like some of those entities, New York-based Lafayette Real Estate first got into rentals after buying up foreclosed homes following the 2008-2009 recession. But managing all those individual rentals spread out in a slew of locations proved challenging. So the company started its own property management arm — Brandywine Homes USA — and is now focusing on acquiring product from homebuilders to create entire communities of single-family home rentals through its Lafayette Communities unit. Its Preserve at Pine Grove community in Riverview, Hillsborough County, is a local example of its approach.

Compared to one-off rentals of existing homes, entire communities of single-family rental homes offer efficiencies in terms of operations, maintenance and construction, Lafayette officials say.  Also, renters of single-family homes tend to stick with leases longer than apartment renters, decreasing turnover. And although homebuyers want options that then have to be worked into the construction process, rental homes can have more uniformity in terms of materials and design choices.

“You need a bit of diversity because you want the community to look nice,” says Thibault Adrien, the founder and CEO of Lafayette Real Estate. “But for property management purposes, you want a product to manage and operate that’s not too complex. If you have different colors for things or different types of appliances, and you have to replace things on a regular basis, it becomes more complex.”

Lafayette has about 700 single-family rental homes completed or under construction in the Tampa area — with a goal to add 1,000 more in the next few years.

Seeing is believing

Being somewhat new, built-for-rent also has a marketing and customer education challenge.  

Consider Wisconsin-based Zilber Ltd., which has developed or is working on three projects in Lakewood Ranch, in east Manatee County: Echo Lake Apartments, Waterfront at Main Street Condominiums and single-family home community LakeHouse Cove at Waterside

It’s making its first entry into the built-for-rent single-family home market with Estia at Lakewood Ranch. Estia has begun renting a portion of the community, with the entire project expected to be completed in April 2021. The 230 one- and two-bedroom bungalow-style units offer fenced-in backyards, private keyless entries stainless-steel appliances and quartz countertops. Rents start around $1,300. (The one-bedrooms will be housed within 51 duplexes; the 128 two-bedroom rentals will be standalone homes.)

Although many renters actively seek single-family homes, some traditional apartment dwellers might not immediately realize how a one-bedroom home can feel a lot different than a one-bedroom apartment, says Mike King, the director of residential investments for Zilber Residential Group, the company’s multifamily division. “You almost have to see it to envision it,” King says. “People who are used to owning houses know what a small house looks like. Whereas people just thinking about a one-bedroom apartment almost don’t have a concept of it. When people come and tour [the models], then it really sinks in.”

Riverview-based ERC Homebuilders, meanwhile, is taking a different approach to the built-for-rent game, which requires another kind of marketing effort. When seeking land around the area for built-for-rent projects, ERC Chairman and CEO Gerald Ellenburg had a bit of an aha moment when the most promising parcel was zoned for manufactured housing.

He had a background in that industry and began to think about a modern twist on the mobile-home parks our grandparents might have lived in. “I thought, is there a marriage here between manufactured housing and built-for-rent?” Ellenburg says. “And we very quickly ascertained that there was.”

In addition to positive factors like ease of delivery and speed to revenue, he found rents could come in at 30%-40% less per square foot for manufactured homes than the rents on a single-family home. “It costs more to build those homes, plus that conventionally built home takes more land,” he says.

ERC already has more than 100 reservations for a 60-unit manufactured-home rental community that will be started soon in Zephyrhills, Pasco County. Ellenburg plans to follow that up with another project in Wesley Chapel, and, if those do as well as he expects, it will be just the beginning. “People will be living in brand-new homes,” he says. “And just as important, when they look out their windows, all they’re going to see is brand-new homes. We think we have an edge here.”