December, 2014

Single Family Home for Rent Strategy

The mortgage crisis of the past decade has led to an increased supply of single family homes (in the form of distressed properties) and a concurrent increasing number of consumers with damaged credit who need to rent homes because they cannot buy. The single family home for rent strategy capitalizes on demand for rental housing and the favorable pricing on the considerable supply of homes that are still working their way out of foreclosure. In 2014, we made a funding commitment to a newly formed real estate investment trust that has to date acquired more than 2,000 homes in 16 cities, mostly in the southeast United States.

What attracted us to this particular manager was their specific geographic focus, their ability to transition properties to cash flowing status quickly, and their proprietary analytical software, which synthesizes the data on the thousands of homes that hit the market every day and makes their enterprise possible. In the course of our due diligence, we determined this manager was a better economic buyer than the bigger institutional buyers with whom they compete.

The current portfolio of purchased and renovated homes is approaching 80% leased with full stabilization expected by year end and an annual cash distribution of 15%-16% on our investment. As the single family homes for rent industry consolidates into a handful of large public and private players, we forecast this portfolio to be an attractive acquisition candidate, with anticipated total returns of 25%-30% IRR over the holding period.