Single-Family Rentals in COVID-19 Crisis Show Resilience

The single-family rental (SFR) market has experienced robust growth following the Great Recession. Now, with the coronavirus requiring social distancing and staying at home, the appeal of less dense, more spacious single-family living continues to increase. In an IMN webinar, panelists discussed the strength of investments in SFRs during the COVID-19 crisis.

Single-Family Rentals Are in Demand

The U.S. has undersupplied housing stock in all products for the last seven years, according to Ted Jones, the chief economist at Stewart Title Guaranty Company. The COVID-19 pandemic will make homeownership more difficult for many Americans suffering employment loss and potential reduction in credit scores, he said. However, this will continue to drive rental demands, particularly for certain products. “I think single-family rental markets is in the catbird seat as we speak right now,” added Jones.

Ryan McGarry, the managing partner and COO at Vinebrook Homes, a leading provider of SFRs, anticipates the economy will open closer to June. The Washington Post reported from the time that the White House declared the pandemic a national emergency, a record number of Americans have filed unemployment claims. Last week, that figure exceeded 26 million. The paper noted the Great Depression was the last time the country experienced this level of job losses.

McGarry opined all housing sectors will feel some short-term pain. Even with SFRs, he expects some delinquency in rent. However, he noted with the eviction moratoriums, he’s not anticipating a decline in occupancy. He pointed out that the underlying fundamentals which have benefited SFRs for years continue to be reliable.

Expect May and June Rental Disruptions

McGarry advised that with the recovery, restoring operations, managing expenses and understanding balance sheets would be critical during the rest of the year.

He predicted that April will be the least disruptive of the next several months because most people with COVID-19 income losses were employed in March. Tenants could also tap into their savings. But he pointed out that a time will come when people can no longer borrow from family and friends.

“Particularly because folks aren’t just getting back to their jobs in the service industries, overnight,” McGarry said. “I definitely think May, possibly June will see an uptick in delinquency.”

Fix-and-Flip Troubles but Build-to-Rent Benefits

Fix-and-flip properties are expected to face some challenges in the SFR space. Panelists agreed that now it’s difficult to get construction permits and to complete inspections. However, lenders are seeing an increase in borrowers’ applications for single-family homes. They stated SFRs are poised for significant recovery, with many build-to-rent units not coming online for another 12 to 18 months.

Jeff Cline, the CEO at SVN | SFRhub Advisors, said SFRs are showing a strong performance compared to other commercial real estate investment segments. He noted one survey found two-thirds of investors had an increased interest or the same demand for SFR investments even a month into the COVID-19 crisis. Cline stated an additional study showed in some markets demand of 10%, and in other markets up to 39% of occupants are searching for new homes. “There appears to be some pent-up demand in the marketplace, both in the multifamily space as well as single-family home space,” he said.

The full IMN webcast is available here.

Arbor is actively lending in the build-to-rent space and has several options available for investors seeking permanent financing. Contact Arbor to learn more about SFR portfolio options.