Rental properties can be good investments, but operational challenges may make some family offices shy away. Mike Hills is vice president of capital markets at Atlas Real Estate, which partners with family offices to invest in the build to rent (BTR) and single family rental (SFR) market in 14 states. He talks about the benefits and challenges of this type of real estate investment:
What are BTR and SFR?
Build-to-rent (BTR) and single-family rental (SFR) represent a new class of investment products in real estate.
Whereas multifamily apartment buildings are known as vertical multifamily housing, build to rent is horizontal: It’s individual homes or townhomes built intentionally to rent, not for the resale market. Generally, BTR is the entire community. Depending on the development, it might be something they can’t sell individually — something they plotted as one big property where the only buyer is a big investor.
Why is there a market for these types of investments now?
The reason it’s happening right now is that there’s a disconnect in the market. There are families that want to live in a house, not in an apartment, but they can’t afford a mortgage payment. This fills that need. For investors, BTR and SFR can help answer the question of how to scale if they want to buy single family homes.
What is your role in these investments?
We bring what you and I know as individuals — that owning a single-family home as a rental is a good long-term investment — to the scale of family offices and institutional investors.
Developers buy the land and build the homes. We come in after it’s built — maybe it’s even operational — and buy that product alongside the family offices. We find deals that are good in markets that we like, where the returns are good, and then operate them alongside the family office.
We try to work with the family office to be both the operational boots on the ground and the investment expert — and a lot of times, a partner in the deal. Our goal is to partner with the family office and then operate the property. We want to be in the deal to drive alignment.
Why are family offices interested in this type of investment?
You can lose every dollar in development — when you’re buying a piece of land and building on it, there are a lot of things that have to go right.
The BTR industry in general is a risk-off bet — for people that are looking for something that has a decent return, that’s very stable. You’re still betting on the American economy, and you have some very strong downside risk protection. There’s always risk, but a risk-off bet means that while your upside isn’t as high, your downside is much more protected than some other seemingly risky investments.
What do people want to know about investing in the BTR and SFR market?
The biggest question people have is operational: how to operate it, how to get scale and the difference between build-to-rent and single-family rentals.
These investments are operationally challenging, from the acquisition of the properties through the management and ending with the disposition. That operational challenge is what scares most people. It’s hard to scale and hard to make work. We think we’ve found a way to scale it and make it work as a very smart and comparatively safe vehicle.
