Sudha Reddy of Haven Realty Capital recently said that we are in the first inning of the build-to-rent (BTR) game. Zonda's research into consumer preferences, the new and more attractive product being built, and our database all back up that sentiment.
It’s a sector searching for definition and analysis, which is why Zonda’s BTR database and outlook research will roll out this summer. We are undertaking the task of aggregating BTR products in the U.S.—bungalows, townhomes, high-density detached, and detached.
It’s a big job, and it’s long overdue. The appetite for information was evident in late March in Dallas, when more than 350 people gathered at Zonda’s Future of Build-to-Rent conference to try and piece the sector together and help each other understand what might be coming down the road.
Here are nine things that I took away from the panels that I think you’d benefit from hearing.
1. Stabilization: Our national research shows that occupancies are stabilizing in the 94% to 95% range, down from 97% in mid-2022.
2. Get with the program: Cottage/bungalows, or horizontal apartments, need programs that align with the greater multifamily space. The lower-density, larger square-footage homes offer internal space, utility, and privacy as the amenity focus.
3. Old school: Schools don't matter as much in the horizontal apartment space as they do in the single-family rental space: This aligns with the higher percentage of families in the larger homes.
4. Residents first: Regardless of product type, the winners in this space embrace a "resident-first" philosophy: This will be even more critical as the space matures and the products age.
5. Wary markets: The capital markets are wary but staying close. The conversation centered on the need for transparency and the ability of sponsors to clearly define the opportunity and the exit strategy/longer-term vision. "Density is our friend" was a rallying cry since it allows cost leveraging. And it was interesting that the necessity of ample parking was emphasized, especially during a capital conversation.
6. Location, location: Location is still the preeminent amenity and the best defense against potential distress in the space. Across the two-day discussion, the importance of a great location as a hedge was brought up consistently.
7. Can it fit a truck?: We established the "F-150 Crew Cab Rule" as a metaphor for understanding the customer. If you are not aware of how they live, what they do, and what they drive, you may construct garages that are too small for their vehicles and miss some significant ways to hook the customer.
8. You don't get me: Not all municipalities "get" the BTR space. The way to win the cities—and neighbors—over is to show the product and thoughtful design. Also, to remind them that renters become owners if they find a place they love and feel at home (Note: The audience was asked: "Raise your hand if you have ever been a renter?" The entire room raised their hands).
9. All about control: While transactions in the space have slowed significantly, many organizations are focusing on what they can control—executing on live deals, getting a laser-focus on cost control, and cross-training the underworked land acquisition and underwriting team to help in other areas of the organization.
Things are murky, and the path to success isn’t always clear. Please let us know if we can help you make sense of the changing market. You can reach me at [email protected] any time.