San Antonio Express-News (Sunday)
A perfect storm for a homebuying spree
Many of the market conditions that have been deterring individuals from buying homes — high mortgage rates, inflation higher than it’s been for decades and an ongoing tight supply of houses for sale — are the sames ones luring investors to San Antonio in increasing numbers to buy single-family homes and rent them out.
Since the early 2010s, major firms in the single-family rental sector, often referred to as SFR, have been snatching up San
Antonio houses by the hundreds. They include Amherst Residential of Austin, Cerberus Capital Management of New York City and Tricon Residential of Toronto.
Each of those is still adding to its local portfolio. Shell companies linked with Cerberus have bought at least 484 homes so far this year, up from 468 during all of 2021, county deed records show.
Those longtime operators now have more competition. Over the past two years, more than a half-dozen large-scale investors have entered San
Antonio’s single-family rental market. They include Avenue One, a firm from New York
City “backed by large private equity investors” who trust it to “deploy billions of dollars,” according to its LinkedIn page. Shell companies linked to Avenue One have bought at least 58 homes here since February.
Over the past year, 29 percent of home purchases in the San Antonio area have been by institutional investors — a category that includes singlefamily rental firms and Silicon Valley home-flipping companies such as OpenDoor — up from 23 percent in early 2021, according to data from John Burns Real Estate Consulting.
“I would say a lot of people are eyeing the industry,” said Danielle Nguyen, senior manager of research with John Burns. “With demographics and affordability, with mortgage rates as high as they are, that may push someone who would be looking to buy a home into a single-family rental home.”
Another newcomer is NexPoint, an investment firm based in Dallas. Since entering the local market this year, it has bought about 200 homes, according to information provided by the firm.
“We consider San Antonio an attractive market because it features a growing population, income growth, job creation, and highly rated schools, which draw workers and families to the area,” NexPoint’s chief financial officer, Brian Mitts, said in a statement. “Like many other markets across the U.S., San Antonio faces a housing deficit, and we are proud to be part of the solution to meet growing demand for safe, quality, affordable single-family
homes for local residents.”
In May, NexPoint published an article on its website predicting a bright future for the single-family rental industry, in part due to inflation, which enables landlords to raise rents, “increasing the property’s cash flow while debt remains the same.” In that way, an investment in single-family rentals acts as a hedge against inflation, the article argues.
The article notes that rising home prices and interest rates, as well as student and consumer debt, have made it more difficult for American families to afford mortgages and down payments — thus, pushing up rental demand. Meanwhile, there is a shortage of homes for sale across the U.S.
“Americans searching for housing in the last few years felt the lack of affordable housing options in the U.S. more than ever before,” the article says. “The decrease in supply coupled with the high barriers to homeownership has created unprecedented demand for affordable single-family rental homes.”
Other firms are making similar points. This month, an investor presentation from publicly traded Tricon included a slide outlining the long-term trends supporting the industry’s growth. Homeownership is “increasingly out of reach,” with millennials owning far less real estate than baby boomers did at their age, the slide says. The COVID-19 pandemic has led more Americans to work from home, spurring demand for single-family homes rather than apartments.
Tricon, which focuses its investments in Texas and other Sun Belt states, has set a goal of owning about 50,000 homes by the end of 2024, up from 33,423 in June of this year. To accomplish this, the company will use the software it has developed, which gathers data and deploys “complex algorithms” to underwrite homes “in a matter of minutes.”
At the end of June, Tricon and its partners owned 1,168
rental homes in San Antonio, up from 991 at the end of December, according to its public filings.
In a presentation to investors from September, American Homes 4 Rent — a company that has been buying homes in San Antonio for more than a decade — noted that the national housing shortage created a “favorable supply landscape” and that the expected rate of new home construction across the U.S. in the coming years won’t be enough to alleviate the shortage.
Among the new investors in
the local market is Transcendent Electra, a joint venture formed last year that has announced plans to buy and develop $3 billion of singlefamily rental housing over the next three years. Transcendent is advertising recently completed houses in the Luckey Ranch neighborhood on the Southwest Side, with others on the East and South sides listed as “coming soon.”
There is also My Community Homes, an investment platform launched last year by global investment company KKR & Co., according to Bloomberg
and other news outlets. Shell companies tied to My Community Homes have bought at least 131 homes in the local market since last year, deed records show.
Recent economic trends have not been entirely favorable to single-family rental firms. Rising interest rates have tightened access to the credit that many firms need to buy large numbers of homes.
Rents have been rising across the U.S. in recent years, which is good for the industry. In the local area, rents climbed from a median of $1,299 a month for a three-bedroom living space in September 2019 to $1,700 last month, according to CoreLogic. Yet in many markets, rents seem to have hit their peaks, Nguyen said.
Among housing activists, there is a concern that the rapid and large-scale purchases made by single-family rental firms have contributed to the tight supply and rising prices that keep many Americans from being able to afford a home.
Advocates for the industry argue that the firms create an opportunity for Americans who are priced out of the housing market — perhaps because of high levels of debt — to enjoy a suburban lifestyle.
The firms say that they make improvements to a city’s housing stock: Avenue One invests an average of $30,000 into each home it buys, according to its website.
Some firms, including Tricon and the national homebuilder Lennar, have begun developing neighborhoods of homes to function as single-family rentals. Local builder Embrey is working on two such projects, in Gruene and Fort Worth.
The single-family rental industry has existed for decades, but it only began operating at a mass scale after the Great Recession, when investment firms realized they could buy distressed homes at low prices. The development of software that can identify homes to buy, as well as help firms find renters and maintain the properties efficiently, has also contributed to making single-family rental homes a desirable investment.
With more investors working in the industry, the hunt for homes has become more competitive, Nguyen said.
“There is more competition to buying these homes, but I would also say that, in the grand scheme of things, it’s not a huge part of the market. I think the majority of the market is still owner-occupied,” she said. “As affordability is worsening, this is another housing asset class for people to live in.”