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Institutional Investors Step Up Competition for Single-Family Rentals in Austin

Institutional investors took a step back in terms of buying activity after the onset of the pandemic. Will 2022 herald a return to more deal-making among institutional investors?

For some institutional investors, industrial or multifamily might not be the hottest sector of commercial real estate in 2022. Instead, the must-watch sector could be single-family rentals (SFRs). As it turns out, Austin is one of the U.S. markets witnessing robust short term rental investment activity.

According to one estimate, at least $50 billion in capital is chasing after opportunities in the SFR sector and adjacent built-for-rent (BFR) sector. Many millions of those dollars undoubtedly will flood into the Austin market this year.

This could mean a couple of things:

• They’ll be competing against deep-pocketed institutional investors for SFR and BFR opportunities.
• Given the competition from huge institutional investors, they might want to set their sights on industrial, multifamily or other sectors.

The BFR phenomenon in Austin

Austin ranked 13th among major metro areas for the number of properties (1,390) in BFR communities as of December 2021. About half of BFR homes in the Austin area are in the suburbs, where home prices are lower than they are within the city of Austin.

Among the major players in the growth of Austin’s BFR market are Calabasas, California-based American Homes 4 Rent, whose revenue exceeded $965 million through the first nine months of 2021, and San Antonio-based AHV Communities, which earmarked $500 million in capital last year to develop 1,500 SFR properties.

Meanwhile, institutional investment giant Blackstone continues to pump billions of dollars into the SFR sector. Companies in its SFR portfolio include Home Partners of America and Tricon Residential, both of which own homes in the Austin area.

Even major homebuilders that operate in the Austin market are getting in on the BFR trend. They include D.R. Horton, Lennar and Taylor Morrison.

SFRs for non-institutional investors

In light of the stiff competition for SFRs in the Austin area, you will need to be particularly selective about when and where to invest in SFRs. Non-institutional investors must practice patience when it comes to locating and purchasing the right SFRs.

Where to look for opportunities? Now might be a good time to make a move on SFR properties in southeast Travis County, where the new Tesla plant is located; Taylor, where Samsung is building a $17 million semiconductor plant; and towns like Thrall and Del Valle near those projects. Of course, bursting-at-the-seams suburbs such as Georgetown, Kyle, Leander and San Marcos shouldn’t be overlooked.

Why consider SFR investments in the Austin are? The answer is simple: As long as housing demand continues to outdistance supply, SFRs will be a hot commodity in the region.

Beyond that, many people who already live in the Austin area or plan to move here are priced out of the local homebuying market. This leaves SFRs as an attractive alternative for them. In addition, the rise of telecommuting has prompted some people to seek bigger homes to both live and work, meaning a flight from smaller apartments to larger SFRs.

Of course, investors of all types, including institutional investors wouldn’t be investing in SFRs in the Austin area if they didn’t see the potential for profit. In that regard, the Austin market isn’t letting them down: It’s one of the U.S. metros witnessing the most explosive year-over-year growth in asking rents for SFRs.

For any investor looking at the Austin market these days, SFRs are a segment of commercial real estate that deserves serious attention.

Key takeaways

• Austin ranks among the top markets for single-family rentals, thanks to high demand for housing and rising home prices.
• At least $50 billion in capital currently is chasing single-family rentals, with tens of millions of those dollars going after Austin projects.
• Heightened interest in short-term rentals might make other sectors more attractive for Austin investors, such as industrial and multifamily.

These are just a few of the sectors we will be watching. What areas are you most excited about? Our team of local experts would love to talk. Call a local lender now.