More diversity of products, amenities and locations abound as a broader demographic seeks BTR homes for affordability, flexibility and privacy, but challenges also loom.  

Build-to-rent (BTR) communities emerged after the 2008 recession when affording a single-family house became a challenge for those without funds for downpayments, monthly mortgages and maintenance costs, but the idea has been around for much longer.   

The new option permitted would-be homeowners to rent a traditional-style house with yards for space and privacy within a planned community of similar rental homes. Typically, BTRs were more costly than multifamily apartments, but larger and with their own outdoor space.   

The sector became a win and evolved further as more developers added assorted sizes, product types, styles and amenities to meet demand from a wider cohort of renters. Like many developers in this niche, Yardly, under the Taylor Morrison umbrella, finds its target audience ranges from Millennials and Generation Z, who are not yet ready to buy, to Baby Boomers, who want to downsize and like the idea of locking and leaving, says Darin Rowe, Yardly President.   

Over time, many institutional investors also stepped in to develop and buy BTR communities. The asset class offered an opportunity more resilient to real estate swings than other sectors. But hurdles arose. Once one of the fastest growing parts of the U.S. housing market, BTR construction has trended down the past few years as it and multifamily have become oversupplied, says Chris Nebenzahl, Vice President, Rental Research, John Burns Research and Consulting. The company’s current data reports that 73,671 BTR homes are under construction and 345,992 have been completed.   

A potential challenge for institutional investors and others may be the 21st Century ROAD to Housing Act, which requires housing providers sell new BTR homes to individual buyers within seven years of construction. The bill brings many challenges to the rental housing industry.

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Locations

Many developers started out and continue to focus on the “Smile States,” a multi-state area within the Sun Belt that resembles a smile from California to Florida, up through the Carolinas. But many developers now look farther afield as migration and job growth lure them. Nebenzahl sees more possibilities emerging in the Midwest where historically there has been less supply but now offers opportunity for steady rent growth. The Northeast remains uncertain. Jason Joseph, CEO and Managing Partner at Trilogy Investment Company, says, “There is growing interest in build-to-rent development in the Northeast, but feasibility remains highly market-specific. Elevated land costs, construction pricing and property taxes can challenge returns, particularly compared to Sun Belt markets.” Yet, he says that in select suburban locations with strong rental demand, limited for-sale inventory and supportive zoning, BTR can still pencil, especially when positioned as a premium or hybrid rental product.   

Drilling deeper, Developers Are Going After Different Markets

• Greystar Real Estate Partners, which has more than 40,000 BTR units under management across the country, focuses on high-growth markets with supportive demographics of young families, says Jordan Kabbani, Managing Director in charge of the company’s U.S. Investment Research & Strategy efforts. Of late, it has focused on infill sites in suburban and luxury suburban locations that permit front- and alley-loaded attached houses and duplex and detached homes. Its choice of high-quality locations, schools and conveniences give its renters what they otherwise might find hard to access in rental property, says Andrew Ord, Managing Director for Development.  
• Material Capital Partners, which began with a townhome community in South Carolina that it sold, still focuses on the Southeast but has expanded to the Midwest where it sees in-migration and retirees who no longer can afford Florida and seek lower costs of living and growing employment centers, says Khrista Villegas, Managing Director. Though it has found most of its renters do so by choice, it finds growth in the working-class segment that values affordability.   
• NexMetro Communities has strategically chosen locations for its purpose-built rental neighborhoods based on income, job and population growth and completed more than 10,000 BTR homes for those who often can afford to buy but prefer to rent for varied reasons, whether young professional Millennials, new families or Boomers, says Jacque Petroulakis, Chief Communications Officer. Most of its locations are in high-growth Smile State submarkets. The company’s newest expansion markets include Atlanta and Austin, Texas.  
• Landmark Properties, long active in purpose-built student housing (PBSH), made a natural segue to develop two BTRs in Texas and one in Alabama, with plans for between five and 10 communities over the next few years in the South/Southeast—Georgia, Florida, South Carolina, North Carolina, Texas—Colorado, midwestern Wisconsin and Minnesota, says Rex Warner, Development Manager.    
• Yardly, which currently has 17 communities mostly in the Sun Belt states of Arizona, Texas, Florida and North Carolina, plans to open 10 more this year across those same four states in cities including Phoenix, Austin, Tampa, Charlotte, respectively, and others, says Rowe. Communities are typically located between 15 and 45 minutes from downtown areas in suburban locations with employment, entertainment and needed housing.  
• Trilogy Investment Company, founded to develop BTRs and currently with 2,500 homes in five communities and 11 under development, has focused mostly on Southern markets where population growth and home purchase affordability challenges guided households toward rentals, says Joseph. As existing supply was absorbed, it again sees opportunities in Atlanta, Dallas/Fort Worth, Houston and Charlotte. The company plans to enter the Midwest due to employment migration and less expensive land. Newer projects are located closer to job centers and mixed-use areas as developers get creative with land and density, he says.   

Size of Communities

Most early communities were smaller than they are now. “Communities are larger, more thoughtfully planned and operated with the same discipline as multifamily housing,” says Joseph, whose company’s communities average 120 to 200 homes on 15 to 25 acres. Greystar communities range from 150 to 175 homes, with exceptions. Some developers have gone smaller depending on a site. For example, Material Capital Partners’ Indigo Cove community in Bluffton, S.C., has 82 homes on 24 acres but others it develops fall into the larger pattern such as River Ford in Brunswick, Ga., with 180 homes on 28 acres. Having more homes affords economics for onsite management.

Product Types

Single-family homes were the earliest models, but these now are often mixed with other products to appeal to a broader range of renters, Nebenzahl says. Overall, he says that 20% are detached, 40% are attached and the remaining 40% are attached or detached and in mixed communities and/or horizontal apartments with attached or detached homes. For example, Trilogy Investment Company offers horizontal, single-story cottage-style units and detached one-and-two-story single-family homes and two-and-three-story townhomes. Greystar has focused both on detached homes and townhome communities. At its Elan Inwood in Dallas, there’s a mix of one-to-four-bedroom townhomes and single-family homes. When possible, the company aims for some single-story layouts for renters who want to live stair-free. Material Capital Partners also varies unit types. Harmony at Clear Creek in Shawnee, Kan., features 91 townhomes and 97 single-family detached homes. Yardly, which started with one- and two-bedroom, single-story cottages, now offers two-story fourplexes, townhomes and higher-density, single-family detached cluster homes, Rowe says. “Our hope is that Yardly renters will go on to become Taylor Morrison homebuyers,” he says. Landmark also includes a mix: Duplexes, quadruplexes, six-to-eight-plex townhome buildings and some stand-alone detached homes. “We like the duplex and quadruplex designs for their livability to have light on multiple sides but density of more traditional townhomes,” Warner says. To make economics work and speed construction KTGY standardizes kitchen and bathroom designs, says architect William Ramsey, Principal. At the same time, some developers, like NexMetro Communities, focus on a single niche. It builds mostly single-level detached rental homes. “We’re not trying to meet every consumer demand or demographic but stick to our knitting with a more targeted premium tier,” Petroulakis says.  

Square Footage and Features

To offer many of the trademarks of single-family homes, many developers are making BTR units a bit larger or at least more efficient. Material Capital Partners’ Harmony at Clear Creek homes trend toward a larger 1,878 to 2,455 square feet because its Shawnee, Kan., area is known for its highly rated schools. Company research showed that the area consists of families with children, so that community includes larger homes with several bedrooms. Greystar homes average 1,800 square feet to appeal to renters who also seek more space. Plans offer generous storage, great rooms, bonus lofts, walk-in pantries, larger kitchen islands, a garage and as much ambient light as possible, Ord says. Trilogy Investment Company isn’t building bigger units than its average 1,350 square feet, but the company makes them more efficient and with one-story layouts, a minimum of three bedrooms, durable finishes and one-and-two-car garages. Landmark Properties’ units, on average 1,200 to 1,600 square feet, include higher-end touches, part of its DNA from work in the student housing sector. The company has a design library of 20 to 25 plans for five to 10 unit types in many sizes to lend a custom feel. NexMetro Communities’ rental homes, which average smaller—under 1,000 square feet—are designed with efficient, open layouts with little dead space and 10-foot ceilings, as well as optional garages and onsite storage units in some neighborhoods.  

Amenities

Many early BTR communities offered a backyard but little else. Now there’s an explosion of choices based on availability of land, weather, price and renters’ ages, again mirroring what’s happened in for-sale housing and mixed-use apartments. “Clubhouses, walking trails, open space, pools and coffee shops are popular amenities,” Nebenzahl says. Many features reflect renters’ desire to spend time outdoors. At Material Capital Partners’ River Ford community in Georgia, perks include a gaming yard with pocket park, two fire pit areas and two stocked ponds. Trilogy Investment Company built REV3 on the Creek near Charleston, S.C., adjacent to a river. Greystar’s Elan Inwood features a dog park and grilling area with a TV. Its Summerwell Peoria Place townhomes in Peoria, Ariz., includes a putting green, multi-purpose sports park/lawn and trail. The continuing search for what’s new has led to EV charging equipment and parking lanes for food trucks.  

Architectural Styles

Aesthetics have improved with choices often borrowing from an area’s vernacular architecture to fit better into a locale, says Ramsey. “Many look more contemporary but are not modern, but offer a fresh take on regional designs,” he says. In following this approach, NexMetro Communities has embraced stucco and tile roofs in Metro Phoenix and stone and siding in Dallas and Denver. Material Capital Partners uses assorted colors and finishes to set its homes apart, with some exceptions, as at Indigo Cove, where townhomes have white exteriors with navy accents for a fresh look, Villegas says.   

Outlook

Overall, optimism outweighs challenges. “The BTR sector faces a number of headwinds from a regulatory and fundamental perspective, but long-term demographics should provide solid demand in the coming years,” Nebenzahl says. Joseph says that while the sector faces challenges as it matures, notably zoning resistance in some municipalities, he is hopeful that greater absorption will mean room for new supply. “When these communities are planned thoughtfully for the right market and with the right design and scale, BTRs remain one of the most effective ways to meet today’s housing demand,” he says. And Warner concurs that more opportunity exists as the gap between the cost of single-family living and renting widens and desire for convenience and flexibility remain.