By: Aaron McGinley
The purpose built Build-for-Rent (BFR) market growth chart is starting to look like a hockey stick and LCP is actively speaking with debt and equity capital hungry for deals. A strong market opportunity is emerging and LCP is here to help qualified sponsors capitalize on this sector.
Commercial Developers vs Traditional Homebuilders
Commercial Developers can leverage the scale of their in-house investment management, property management, and development groups to build horizontal multifamily developments. Single family homes will be a new product type for most commercial developers and they will need to have the right contractors in place to get it right. However, what they lack in single family home development experience, they most likely make up for in institutional investment management and large scale project execution.
Homebuilders have a demonstrated track record of construction and development of single family communities which puts them in great position to capitalize on this new market. They’ll likely need to partner with an established management company or hire a 3rd party manager as they traditionally are merchant builders and not owner operators with a track record of asset and property management.
What are Debt and Equity Providers Looking For?
Equity investors are interested in partnering with commercial developers and homebuilders that show a demonstrated track record of home construction, development execution, and long-term rental management. The investors can either come in as an LP when they feel the sponsor has an existing portfolio or a Co-GP where they need to bring in their development expertise. Investors want to create a portfolio of BFR communities that can be managed like multifamily but with double digit unlevered returns. Market rate yield on cost is variable due to market specific construction costs but expectations are generally higher than for multifamily construction.
Debt lenders like cash-flowing rental properties and as more people escape the big cities for suburban living, they feel like this asset type will hit the right chord for many people used to choosing between owning a home vs apartment living. You can expect a variety of options for first mortgage debt, including high leveraged stretch loans, mezz, and pref options along with non-recourse facilities available to the strongest sponsors. Expect pricing will be inline with multifamily loans.
We’re in the market right now!
LCP has been tracking this space for a long time and can help you navigate the capital markets to get your project financed. We are talking with sponsors and institutional investors on a daily basis and know who the right groups are to be speaking with and can help guide you to supplement any holes in your presentation or team. LCP’s Build-For-Rent program can arrange programmatic solutions for long term growth in the marketplace. This is an exciting space with lots of future opportunities and we know what it takes to grow your BFR platform.