The Real Estate Capital Scoreboard® – August 2021

Chicago, Illinois, August 1, 2021 – Inflation fears resurface as the main ingredients of realty development – land, labor, and materials – continue on an upward spiral.  The Fed expects to raise rates in two years, but many experts predict hikes sooner.  In the meantime, benchmark interest rates and mortgage spreads hover near historic lows.   As a result, real estate capital markets focus on extremely tight yields due to limited investment opportunities.

Single-family rental (“SFR”) housing represents the best examples of institutional investment opportunities within a supply-constrained environment.  SFH is a relatively new asset class for many institutional investors.  SFR class now ranks as a favorable property type for the following reasons:

Competitive Yields:  Spreads of 200 basis points or more exist for builders selling to institutional investors, as retail pricing hovers in the high-3%-to-4.5% range.  Such yields reflect wider spreads than buying comparable-quality multifamily assets.  Lately, however, pricing continues to tighten as more players move into this sector.  New construction pre-sale takeouts offer higher yields but with greater investor risk.

Portfolio Diversification: Institutional investors traditionally seek net lease, industrial and multifamily assets as preferred property types.   SFR ventures now offer more diversified risk in a property sector seen as critical to consumers and investors alike.

Hold Strategy:  The housing shortage is a critical problem in the nation.  SFR offers longer-term hold strategies for upside values as housing demands far outweigh supply.

Mr. John Oharenko, Director at The Real Estate Capital Institute, notes, “Single-family rental investments, are the hottest assets on the market today.  Institutional investors jump in to catch the action, driving down yields to record-low levels for this sector.”

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