Built-To-Rent Development Forecast: New Supply To Fall Short Of Demand This Year


An aerial view of Avilla Gateway by NexMetro. The Avilla communities feature cottage-style housing … [+] units that include private outdoor space and detached-home lifestyle.Photo courtesy of NexMetro. The blazing-hot pace of construction in the build-to-rent (”BTR”) segment of housing is slowing down sharply. But it is not for a lack of demand from consumers. Rather, the slowdown is a reflection of a “capital crunch” for new construction.

Shortly after interest rates started rising sharply in 2022, the amount of capital seeking BTR deals was drastically reduced. The debt side worsened before the equity side; the harbinger was the failure of Silicon Valley Bank and Signature Bank. Banks’ earnings experienced sudden increases in funding costs, and profitability pressures mounted amid the Fed’s tightening of monetary policy. Less profit and lower deposits meant less “excess reserves,” which in turn meant less money available to loan. Since then, the equity component has also been more limited, but the most common descriptor of the equity’s stance is “selective.” That is a euphemism for “some deals that worked on paper last year don’t pencil out this year.”

Meanwhile, the demand for these communities remains strong. Young householders who want a single-family lifestyle, but amid mortgage rates are more than ever forced to look for a rental. Up until a few years ago, the only rental options were apartments, or the one-off single-family rental home. Now, with the newly-emerging BTR trend, these households also have the option of renting within a cohesive, purpose-built, professionally-managed BTR community. And for the past ten years, they have been filling up as fast as they could be built.

The three broad categories of BTR are:

cottage-style

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