Big Investors Are Hot For Single-Family Rental … As Long As The Tech Is Right

Major institutional investors including CBRE Investment Management are preparing to plough significant money into the UK single-family rental sector because of the good returns it provides — but to get it right takes an intelligent tech platform. 

“From our perspective, we are already invested in this sector in the U.S., and selected markets in Europe like Ireland and the Netherlands, and we are actively assessing the UK as well,” CBRE Investment Management Chief Investment Officer for Indirect Private Real Estate Achal Gandhi told viewers of a Bisnow webinar on investing in single-family rental. 

Bisnow is hosting a live, in-person event on the growing UK single-family residential sector on 24 February.

Gandhi pointed to evidence the sector was high on the wish list of institutional investors in the U.S.: Allocations from the funds that make up the huge U.S. Odyssey index to single-family rental have increased dramatically in the past few years.

“Over the past couple of years, there has been very little disruption in the sector, and net operating income has continued to grow,” Gandhi said. “Where U.S. institutions have gone, we think those from Europe and Asia will follow.”

Greystar Head of Europe Mark Allnutt pointed to another indicator of investor demand: Shares in the largest single-family rental platform in the U.S., Invitation Homes, have risen 37% in the past 12 months.

Gandhi pointed out that big platforms in the U.S. like Prentium or Progress have been buying existing homes in the secondhand home market in order to build scale quickly — if you wait for purpose-built single-family rental homes to be built before buying them, you can’t grow as fast. And the same is true of the UK.

But buying and managing individual homes requires a sophisticated technology platform, Immo Capital Chief Investment Officer Samantha Kempe said.

A good technology platform provides investors with data about what rents can be charged in different areas, and therefore how much they should be paying for homes, allowing informed and also quick underwriting decisions on acquisitions. 

And once homes have been acquired, tech platforms allow platforms to manage units that might be geographically dispersed in an efficient manner.

“Our gross-to-net leakage is about 20-22%,” Kempe said. 

She said that a mature, well-managed portfolio was good for both renters and institutional investors. 

“We don’t have to charge the premium rents [that a BTR operator might need] because we haven’t got a lot of amenities, but we do provide the customer with a better management experience,” she said.

“When you aggregate these homes you create a portfolio that’s well-diversified and provides core, stable income. You have a three-to-five-year aggregation and hold period and then you have multiple exit options: You can sell all or part of the portfolio, syndicate it or create a single-family rental REIT.”