Large SFR Operators: Lessons Learned From COVID-19
- Large SFR operators anticipated the bumps in the road that COVID-19 would bring.
- The pandemic accelerated improvements in technology and communications.
- SFR strategies at times will weigh increased rent growth with tenant retention.
Many real estate professionals one day may look back at COVID-19 thinking: “It was the best of times, it was the worst of times.” Already benefiting from the trend of millennial, suburban family formation, the single-family rental (SFR) sector saw heightened demand, retention, occupancy and rent growth. The pandemic-induced desires for more spacious and comfortable living further fueled this trend.
However, with COVID-19 disrupting the economy, owners and operators of large SFR portfolios still needed to take actions to curtail losses and improve performance. At the IMN Single-Family Rental West Virtual Forum, a C-suite panel shared the strategies they used to turn the historical challenges into opportunities.
Anticipate Bumps in the Road
“Obviously, an eviction or turnover is one of the worst outcomes and something we attempt to avoid at all costs,” said Ryan McGarry, the COO at VineBrook Homes. “We were very quick to get out in front of any disruptions there would be to collections or people’s ability to pay rent, setting up a hardship program before the shutdowns started to take place.”
They helped tenants understand rental assistance programs, steering them to resources to help them stay in their homes. VineBrook’s collection rates with approximately 1.4% bad debt remained competitive in the industry, stated McGarry.
The co-head of institutional SFR at Amherst Residential, Chris Avallone, described a program that his company offers with the University of Texas School of Social Work. It identifies resources that tenants can use during times of financial hardship. He noted COVID-19 highlighted how proactive communications with residents can turn relationships into stronger partnerships, which then support retention and lease renewals.
Brand Loyalty, Stickiness
The Promise Homes Company offers tenants complimentary credit counseling, financial coaching and financial literacy education for children. The founder and CEO John Hope Bryant commented that even before COVID-19, they worked to earn resident engagement. Many tenants had previously associated landlords with adversarial experiences.
“They would ask, ‘What’s the catch?’ The catch is I want you to pay your rent. The catch is I want you to have less stress in your life. The catch is I want you to succeed. Your success is my success,” Bryant said.
The Promise Homes created a COVID disaster program, allowing residents to borrow against their security deposit. Last month, the company reported approximately 97% of on-time rent payments. For the holidays, tenants who made rent in December received a $50 gift. Instead of spending money on advertising, the company invested in their relationships with residents.
Initially, The Promise Homes had employed 4% minority vendors. Bryant noted that raising the level to 51% fostered greater tenant trust. “The reason we performed in 2020 is because of the perceived ‘nice to have’ programs,” he said.
CEO of The Haven Group Lauren Taylor added that brand loyalty depends on an old adage: “It really is all about customer service.” Her company stresses not only technology but appropriate staffing to ensure tenants experience actual human conversations.
Weighing Retention and Rent Pricing
Taylor differentiated ways in which owners and operators use distinct strategies to achieve various goals. For example, some clients will invest in renovations, creating a higher-end product to maximize rent, even if it means more extended time on the market. In contrast, an affordable housing development may charge a lower rent, expecting a lower vacancy rate.
“We’re continually analyzing market-level data to ensure refining the right balance between affordability and retention versus rent growth,” said Avallone. “We’ve all benefited from positive rent growth over the last few years. In particular, post-COVID, there has been a scarcity of institutionally managed product that had driven strong rent growth.”
In addition to the supply shortage confronting large SFR operations, the panel touched upon future potential challenges, including possibly higher real estate taxes and insurance costs. However, in addressing difficulties such as tenants not paying rent, Bryant reminded the audience that every problem also presents opportunities.