A confluence of factors has created the "perfect storm" for sustained growth in the single-family rental market, according to one expert in the Securities Lab of the Inaugural Five Star Institute Single-Family Rental Summit on Monday, October 12, in Las Vegas.
Those factors include higher mortgage rates, tightening credit standards, rising home prices, an increased number of rental options, ever-increasing student loan debt, and the number of household formations to building permits combined with declines in income growth, distressed sales, personal savings rate, and the overall desire to earn a home, said Chris Crippen, managing director for US Residential Asset Fund.
"This is all leading to the perfect storm for sustained growth," said Crippen, who has worked as an analyst, asset manager, and executive for Wall Street REITs, the FDIC, and Fannie Mae before founding US Residential Asset Fund in 2010. "At the FDIC in 2007 and 2008, the question was 'How long will REOs last?' Then all the REO agents went into the investment space. How long will that last? Who knows. We're in an artificially suppressed interest rate environment right now. Trends are good. We're in a perfect storm for sustained growth. I could say for the next five years all looks great and we'll check back then. If I had to put a number on it now I'd say we're in the third inning. It's not too late to get in."
Crippen gave a presentation in the lab on Areas of Growth in the single-family rental securitization space. The lab also included presentations from Charles Chacko, Founding Member, OS National (host of the lab); Sonny Weng, Lead Analyst, Single-Family Rental Sector, Moody's Investor Service.
During an 18-month period from 2009 to 2010 while working at the FDIC, Crippen and his team closed 150 banks int he southeast and closed another 23,000 assets. That, Crippen said, opened the door for institutional investors.
"This was the beginning of the single-family rental space," Crippen said. "Prior to that, just the cost for an institution to come in and buy a property at market level and try to cash flow it, it just wasn't happening."
"Institutionalization means really intelligent people are coming in here to figure out how they can make as much money as possible."
"This is a $23 trillion market that is just now being institutionalized," Crippen said. "Institutionalization means really intelligent people are coming in here to figure out how they can make as much money as possible. Typically this market was mom and pop investors—5 to 10 homes. There are about 14 million rentals in the U.S. and about 200,000 are institutionally owned. So there is so much room to grow here."
The demand for single-family rental houses has soared, which has caused the boom in the market, Crippen said.
"If you look at a multifamily portfolio, they're typically comprised of 1-1s, 2-2s, close to the urban core," Crippen said. "Very few 3-2s. When someone has a kid or has a family and graduates from that and they want to own a home, where do they go? Prior to where we're at now, there was really no place for them."
Crippen said the SFR industry is a maturing one where everything consolidates to the cheapest money, and as interest rates start to increase, higher efficiencies will be demanded and created, so there will be even more opportunities and more markets will open up in which renters can participate.
"The ways to create efficiencies are policies and procedures and training, and data reporting is a huge thing when it comes to securitization," Crippen said. "As the efficiencies are created, all the experience they've learned in the last four years it doesn't stay with these institutions. As they get more efficient, it trickles down and teaches other people to be more efficient and make more money in this space."
Editor's note: The Five Star Institute is the parent company of DS News, DSNews.com, The MReport, and TheMReport.com.