Although the build to rent (BTR) asset class is not new, in recent years this type of niche property has become an investor favourite. With so many players in the market, BTR developments are flourishing, with volume set to double in 2022 from the previous year. Nevertheless, David Conwillexecutive vice president of development company BTR RedwoodHe says these developments can be nuanced, and with competition on the rise, it’s more important than ever to pay attention to detail.
At the fundamental level, a winning BTR market generally adheres to the same principles as any other rental housing. The prospective market must have strong employment and job centers, favorable supply and demand dynamics, and access to services.
But there’s an important caveat: “We’re talking about the suburbs,” says Conwill.
building in the suburbs
“Generally speaking, any major MSA could be a quality build-to-rent market,” says Conwill. “You don’t build BRT in the urban core or in an urban environment.” Conwill adds that while Redwood has been building independent rental homes since 2001, BTR has become an umbrella term for a variety of non-apartment rental housing properties, from townhouses to single-family communities.
Outside of this standard framework, land availability and development regulation play a critical role in making BTR projects viable. As Conwill points out, BTR is significantly less dense than multi-family rental, and that pits sale developers against BTR developers for valuable development sites. This can increase costs, and a BTR will have to balance finding less expensive building land that is also relatively close to city centers.
That’s because the search for land has its limits. Developers must be careful about venturing too far from established suburban locations. “At the end of the day, you want to be in an area where there are people, a sense of community and critical mass,” says Conwill.
Understand the regulatory environment
Rigid regulation of development is also a major challenge, as unbalanced regulation can quickly derail a project and limit opportunities in less development-friendly metropolitan areas. The sector has behaved accordingly.
“We see BTR really taking off in states and markets where there is a pro-development regulatory environment,” says Conwill. “That’s why the product type has done well in southwestern markets like Phoenix and Austin, and in southeastern states like the Carolinas and Florida.” These places also check the box for land availability, favorable population growth, and jobs.
While finding a quality BTR location has become challenging, largely due to the fervor for the asset class and the billions of dollars in investment capital competing for opportunities, shifting demographics will help support demand. continues in the BTR space. “People want to have a more flexible lifestyle and don’t want the responsibility of owning a home,” says Conwill. “For those demographics, BTR is attractive.”