SINGLE-FAMILY RENTAL HOMES TO OUTPACE
MULTIFAMILY OVER NEXT 3 YEARS
The single-family rental home sector has been faring well during the pandemic.
One sign of the sector’s appeal: J.P.Morgan Asset Management and single-family rental home REIT AmericanHomes 4 Rent are partnering to invest
$625 million in this space.
But what about its counterpart assetclass of multifamily? The sector’s headline news has been all about whether tenants are paying their monthly rent. So farthey are, more or less, but many analystsexpect defaults to increase as the economic turmoil continues.
The problem for multifamily is that itsfundamentals are too strongly correlatedto job losses for the sector to be completely resilient to the pandemic, according to comments John Pawlowski, senioranalyst of residential at Green StreetAdvisors made during a recent webinarthe company held.
For that and other reasons, Green Streetis betting that for the next two-to-threeyears, the single-family rental home sectorwill outpace multifamily in terms of rent,revenue and even NOI growth, he said.
Considering that multifamily has been
the perennial darling of the commercial
real estate sector, this is an eyebrow-rais-
ing prediction. Pawlowski made down his
case during the webinar.
For starters, the magnitude and veloc-
ity of the recent job losses is nothing that
institutional landlords have ever seen.
Compared to previous downturns, “there
are a lot more people exiting the labor
Another factor, which is not related to
the pandemic but comes at a very inconve-
nient time, is shifting demographics. They
are not as supportive of multifamily as they
have been in other recessions, Pawlowski
said. “This will be the first year of a net
decline of 25-to-29-year-olds in the country
and a broader deceleration of 25-to-35-year-
olds”, a trend that will lead to a more grad-
ual recovery for multifamily, he said.
Also, the multifamily supply pipelinewas very full as it entered this latest recession. “There is a good two years of supplythat needs to be absorbed, which will leadto an evaporation of landlord pricingpower,” Pawlowski said.
All told, Green Street is predicting a6% decline in multifamily NOI for 2021,a deeper trough than earlier recessions,he added.
Ultimately, though, multifamily will
emerge from the slowdown with a rep-
utation relatively intact among inves-
tors, Pawlowski also said. “When dust
settles on this downturn, investors will
still be able to use the resilient label
for apartments versus other big prop-
But in the meantime, single-family
rental homes will be performing better
than the apartment asset class.
“We are betting that for the next two-to-three years single-family rental homeswill outpace multifamily in rent, revenuesand NOI growth,” he said.
So far, single-family rental home operators report that their pricing power andoccupancy levels are holding, Pawlowskinoted.
But more importantly, demographicsand supply favor the sector right now. Forinstance, Pawlowski pointed out that thereare few trade down options for a familyliving in one of these homes with a mid-FICO score and a desire to stay in a goodschool district.
“We don’t see any meaningful cracksin single-family rental homes’ fundamentals,” he concluded.—Erika Morphy