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By Bendix Anderson<\/div><\/div>\n

Faced with a dearth of affordable existing homes, single-family investors say they\u2019ll spend big money creating new rental-home developments in Fla. and other states.<\/span><\/span><\/p>\n<\/div>\n

NEW YORK \u2013 The single-family housing market is red hot with prices rising at record-shattering rates. Homebuyers, who were briefly sidelined during the pandemic, have been hungry to take new space and take advantage of low mortgage rates to buy homes. Nationally, the S&P CoreLogic Case-Shiller index of property values climbed 12% in February from a year earlier, the biggest jump since 2006.<\/span><\/span><\/p>\n

So, it might seem like a challenging time for investors to swoop in and build single-family rental (SFR) portfolios. But that\u2019s exactly what Transcendent Electra, a new joint venture, is doing with a war chest enabling it to spend billions to buy and build houses. Transcendent Electra, launched in February, is a partnership between Transcendent Investment Management, a single-family rental (SFR) platform, and Electra America, a longtime owner and operator of apartment properties.<\/span><\/span><\/p>\n

\u201cWe\u2019re able to leverage Electra\u2019s multifamily expertise and presence in those markets to reach prospective residents and capitalize on economies of scale says Jordan Kavana, CEO of Transcendent Electra. \u201cThere are a lot more efficiencies the multifamily has realized that single-family rental houses have not.\u201d<\/span><\/span><\/p>\n

One appeal is that demand for SFR rentals has been rising right alongside demand for home ownership. In fact, two SFR REITs, American Homes 4 Rent, which owns 54,000 houses, and Invitation Homes Inc., recently announced double-digit percentage increases on rents.<\/span><\/span><\/p>\n

With the economy not back to pre-pandemic levels, some SFR tenants have continued to struggle, but those renters typically are not the ones inhabiting houses in institutional-quality portfolios like the one Transcendent is attempting to build.<\/span><\/span><\/p>\n

\u201cA lot of people move from multifamily to single-family rental houses,\u201d says Kavana.<\/span><\/span><\/p>\n

Transcendent Electra announced in May that they were adding 1,889 new homes totaling $1.5 billion to its portfolio of rental properties. Of these, the partnership is already in contract to buy new single-family homes and townhomes totaling $496 million. Transcendent Electra has another $1 billion worth of single-family rental properties in its pipeline. The properties are scattered throughout the following markets: Birmingham and Huntsville, Ala.; Florida<\/strong>; Savannah and Atlanta, Ga.; North Carolina and South Carolina; Nashville, Tenn.; and Dallas, Houston, San Antonio and Austin, Texas.<\/span><\/span><\/p>\n

These investments are the first half of Transcendent Electra\u2019s plan to acquire or develop rental houses totaling $3 billion over the next three years. Eventually, the partnership plans to own and manage 15,000 to 20,000 units of rental housing.<\/span><\/span><\/p>\n

\u201cWe have strategic relationships \u2026 builders we have worked with for four or five years,\u201d Kavana says. \u201cOur longstanding relationships with some of the nation\u2019s top homebuilders have allowed us to locate product in markets where demand exceeds supply.\u201d<\/span><\/span><\/p>\n

Transcendent Electra intends to grow its portfolio of rental houses even though home prices are growing very quickly. The median price of an existing home was $329,000 in March 2021, up from $280,000 the year before, according to the National Association of Realtors.<\/span><\/span><\/p>\n

These prices are much higher than the deeply discounted prices investors used to pay to buy houses seized in foreclosures during the Global Financial Crisis. Transcendent stopped focusing buying existing houses years ago as prices rose.<\/span><\/span><\/p>\n

\u201cTo buy an old home \u2013 you would almost have to twist my arm \u2026 unless you were buying a such a deep discount,\u201d says Kavana.<\/span><\/span><\/p>\n

Instead, Transcendent Electra plans to buy these homes and townhouses directly from homebuilders in new developments.<\/span><\/span><\/p>\n

\u201cThey allow us to buy the first five or so houses at a price that meets our return requirements,\u201d says Kavana.<\/span><\/span><\/p>\n

These homebuilders benefit because they can depend on immediately earning income at their planned single-family developments from these sales to Transcendent, instead of waiting for the usual pace of home sales to play out. That allows them to plan more aggressively and move their capital more quickly to new developments. \u201cThis is purely accretive from the homebuilder\u2019s perspective,\u201d says Kavana.<\/span><\/span><\/p>\n

Transcendent Electra will focus of buying homes in the $175,000 to $300,000 price range \u2013 and will charge rents averaging between $1,500 and $2,800 per month. That works out to an average cap rate of about 10%.<\/span><\/span><\/p>\n

Other companies focused on single-family rental properties have also started to bid to buy these new properties. \u201cOur competition is the top REITs,\u201d says Kavana. \u201cThey are starting to understand the value of being in the new product space.\u201d<\/span><\/span><\/p>\n

Family offices and high net worth individuals continue to be the biggest investors in Transcendent\u2019s platform. A few institutional investors have also put money into Transcendent Electra\u2019s platform. About 85% of the investors in Transcendent Electra are based in the U.S., and the rest are international investors. Transcendent has been able to provide these investors returns in the 15% to 20% range.<\/span><\/span><\/p>\n

\u00a9 2021 National Real Estate Investor<\/span><\/span><\/p>\n<\/div><\/div>\n

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\nAuthor: kerrys<\/p>\n","protected":false},"excerpt":{"rendered":"