- Pensions and a sovereign wealth fund are investing in residential real estate, namely SFRs.
- Institutional investors are building homes to rent out, evading the stigma of hosing up inventory.
- Some are gaining exposure to the market through big Wall Street players like Carlyle.
- See more stories on Insider’s business page.
Over the past decade, major institutional buyers have been steadily acquiring single-family homes across the country to rent out at a profit.
But the pandemic has put the trend on fast-forward.
The value of residential houses has skyrocketed over the past year as Americans hunkered down at home and gained an appreciation for the added space and suburban surroundings of single-family properties.
Investors — including single-family rental (SFR) buyers — responded by purchasing a record $77 billion worth of homes during the fourth quarter of 2020 and the first quarter of 2021, the brokerage firm Redfin found. In the first quarter, one in seven home purchases in America was made by an investor.
Increasingly, pension funds and other institutional investors are on the lookout for investment opportunities in the single-family market, where they can inject capital into real-estate projects with hopes of capturing higher returns.
“With SFR, there’s so much room to run,” said Darren Schulz, a manager with the North Dakota State Investment Board, a pension fund that recently committed $200 million to an investment fund managed by Invesco that plans to acquire single-family rental housing.
While North Dakota is investing in opportunities through an Invesco fund, Schulz said the pension still has a responsibility to conduct due diligence on Wall Street firms leading these real estate projects.
“I think it’s incumbent upon us to understand how the firms that we engage with conduct themselves as owners, whether it’s office [space] or SFR. That’s on me — the diligence, how they conduct business, how [they’re] screening and managing tenants,” Schulz said.
The stigma of competing with everyday buyers for homes
In some hot markets such as Atlanta, Phoenix, and Dallas, big SFR investors and other corporate interlocutors have contributed to a tight housing market that has made it harder for everyday Americans to purchase homes.
Investors, especially pensions, which are sensitive to assets that could have negative societal, economic, and environmental consequences, are increasingly aware of the controversy. Some view the build-to-rent segment of the SFR business as less fraught. Building homes, after all, adds much-needed housing inventory, even if it doesn’t bolster the number of for-sale homes.
The New Mexico State Investment Council, a sovereign wealth fund with nearly $30 billion in assets under its management, recently put $100 million into a fund managed by the private-equity firm Carlyle that seeks to invest, in part, in single-family rental housing.
But Paul Chapman, a director at the fund who oversees its real-estate investments, said it was more focused on the build-to-rent segment of the SFR business going forward.
“If an investment firm came to me and said their strategy was to buy homes here and there and put together a portfolio that way, that’s not as interesting to me,” Chapman said. “But my ears would perk up if they said they were doing a build-to-rent strategy. If we’re going to continue to invest in this space, that’s where we’re most interested.”
For more on how Wall Street is buying and building entire neighborhoods, check out this story.
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