At Compound, we shy away from jargon and insider-only abbreviations, but here’s a term worth knowing: SFR. SFR stands for “single-family rental” and refers to single-family homes that are rented out to tenants.
Something like this:
Right now, SFR is having a moment. A big one.
Rising from the Ashes
The SFR business arose from the ashes of the 2008/2009 financial crisis, when vulture investors were able to buy suburban spec homes in large quantities at deep discounts. At the time, private equity firms bought enormous portfolios of these SFR assets. Then in 2017, Blackstone completed an IPO of its 48,000-unit portfolio (in a company called Invitation Homes) at a valuation of more than $12 billion. (Blackstone had spent about $9.6 billion to buy and renovate the homes, which netted a tidy $2.7 billion gain for its investors.)
After watching Blackstone’s victory with envy, the rest of the real estate investment industry raced to copy the strategy. Today, most large real estate investors have a strategy, team and capital allocation for SFR. Approximately $33 billion of SFR assets are currently owned by institutions, but some estimates peg the total single-family home market at $28 trillion, which leaves plenty of room for growth. (Professional investors account for only 2% of all US single-family home and condominium sales.)
That’s why real estate investors and venture capitalists are watching the sector so carefully. As SFR investment becomes mainstream, a cohort of technology and service providers are being built to service this young, but fast-growing ecosystem.
And while suburban homes in the midwest and sunbelt may generate more current income — they tend to sell at higher cap rates than single-family homes and condominiums in major coastal cities — they tend not to appreciate as much or as quickly.
At Compound, we see a very compelling market opportunity taking shape in residential real estate in major American cities. And we’re not alone in thinking so. Last year, 11% of Manhattan condos sold became investor-held rentals, and we see the same thing playing out in cities like San Francisco, Los Angeles, Chicago, Washington DC, Boston, Austin, and Nashville.
Don’t want to feel like a herb when all your friends are gushing about SFR? Below are some industry highlights so that you can very casually drop the phrase “SFR” into your next Instagram post with total confidence.
- Total Single-Family Homes in the US: 15,000,000
- Owned by SFR Funds: 250,000
- Hottest Market for SFR (by volume): Atlanta-Sandy Springs-Roswell MSA
Publicly-traded SFR companies:
The sector also has its own index, Hoya Capital Single Family Rental Index, but it only tracks the top two stocks (INVH & AMH.)
Recent announcements for large privately-held SFR funds:
* committed from Teachers’ Retirement System of Texas & Government of Singapore
Online Real Estate Brokerage Platforms specializing in SFR:
Entera, Roofstock, OwnAmerica, an online exchange for occupied SFRs, and Homeunion which buys homes, renovates and leases them, and also operates a fix-and-flip fund.
It’s worth noting that Roofstock has raised over $75 million in venture capital and HomeUnion has raised $21.5 million.
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Sources: Nasdaq Behind The Deals NREI Online 1 NREI Online 2 Curbed Bloomberg Business Wire Real Assets Crunchbase