Wall Street firms that are finding it harder to buy up single-family residential homes in existing neighborhoods are putting their financial muscle to work by creating “build-to-rent” communities.
There are around 900 neighborhoods nationwide that each boast an average of between 135 and 150 homes that were designed with the intent that institutional investors would own them and rent them out to single families, according to data cited by The Wall Street Journal.
Around 10% of new housing construction is done with a “build-to-rent” model in mind, according to the National Association of Home Builders.
The new homes come equipped with modern flooring and furnishings that are designed to withstand years of wear and tear — thus saving the companies a hefty sum on maintenance costs while also being attractive to tenants.
“Like most businesses, Wall Street real estate investors are looking at the economies of scale,” Ted Jenkin, the founder and CEO of Atlanta-based oXYGen Financial, told The Post.
“If you can buy one plot of land, build a similar style house with similar materials it becomes much cheaper and cost efficient for your outcomes.”
The push to build entire communities from scratch has increased as high interest rates cut down on inventory — since fewer homeowners are willing to put their properties on the market.
In the third quarter of 2023, landlords who own at least 100 properties bought just 1% of all homes sold in the US — down from 3% in the same period of 2022, according to John Burns Research and Consulting.
The data shows that mom-and-pop landlords bought 19.4% of investment home purchases during that same period.
Wall Street became a major player in the residential real estate market after the 2008 financial crash, when firms such as private equity giants like Blackstone and Carlyle and hedge funds such as Cerberus bought up thousands of foreclosed properties for pennies on the dollar.
But the time-consuming and costly process has forced Wall Street firms to rethink their approach, particularly when inventory is so low.
“The scattered sites model has run its course. It worked when lots of houses were in foreclosure but it’s not the future of the industry,” Brad Case, chief economist for Middleburg Communities, told the Journal.
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