Why Purpose Built Single Family Rentals?

January 11, 2018

By: Tim SullivanMeyers Research LLC

Of the 117 Million Units in U.S., 36% are Rented

U.S. Homeownership Rate Near a 20-Year Low

28% of Rental Units (~12 Million) are SFD

Renter-Occupied Housing Units

NMHC & NAA: 4.6M Apt Units Needed by 2030

• 39 million people live in apartments• In one million new renter households were formed every year for last five years• Need at least 325,000 new apartment homes every year to meet demand; yet, on average,

just 244,000 apartments annually were delivered from 2012 through 2016).Some factors that are leading to the increased demand for rental units include:• Delayed home purchases• The aging population• Immigration

Source: National Multifamily Housing Council

Single Family Rental Offers Further Segmentation

Single Family Rental REITs Concentrated in West and South

Source: CartoDB, Evercore ISI

Top 3 = 127K units

American Homes 4 Rent Portfolio Overview

Source: Evercore ISI

American Homes 4 Rent’s portfolio includes 20 major MSAs, led by Dallas-Fort Worth and Atlanta (8% to 9% of their total portfolio in each). It should be noted that AH4R also owns over 7,000 homes in other MSAs, totaling 15% of the portfolio. The highest lease rates are being achieved in Chicago ($1,740 per month on average), while the highest occupancy rates are in Phoenix, Las Vegas and Salt Lake City (+/-97%).

Invitation Homes Portfolio Overview

Source: Evercore ISI

Invitation Homes’ portfolio includes 13 geographic regions, led by Atlanta (15.6% of the total portfolio). It should be noted that INVH uses large geographic regions to define their home locations such as Northern California, Southern California and South Florida—each of these regions contain several MSAs. The highest lease rates are being achieved in Southern California and South Florida ($2,197 and $2,169 per month on average), while the highest occupancy rates are in Northern California (97.3%).

Investor Segmentation by Volume

Up to this point, Institutional REITs control ±2% of the SFR market

Source: Investability Solutions

Meyers Competitive Ranking – Scenario AThe table below includes the ranking and percentage “point score” for all 56 MSAs in Scenario A, a blended approach that considers absolute values and growth rates. Houston, Dallas, Atlanta, Orlando and Phoenix have tremendous upside. These markets offer robust job growth and a high percentage of lower-income households (renters, not buyers) making these markets worth considering for a single family rental development strategy. It is also worth noting that a smaller market such as Cape Coral-Ft. Myers, Florida ranks relatively high in the Scenario A analysis (9th).

Top Segments in the Phoenix MSA: Ideal for SF Rentals

The top psychographic profiles in the Phoenix MSA are Up and Coming Families and The Elders, which both represent single family home dwellers, but both are predominately home owners rather than renters. The third and fourth segments are Young and Restless and Barrios Urbanos, which have ownership rates that are below average (60% or less). Metro Fusion and Bright Young Professional round out the top 10, and both of these categories have a low homeownership rate (24% and 43%).

Purpose Built Single Family Rental CommunitiesActive purpose built single family rental communities are shown below, including developments by BB Living (red) and Avilla (purple). Generally these communities are located in solid suburban areas of the Phoenix MSA (good schools, low crime areas).

Phoenix Rental Submarkets

Phoenix Single Family Rentals by SubmarketsSingle family homes are summarized by submarket below. North Scottsdale offers the highest volume of listings (1,130) and also has a wide variety of rental rates ($1,150 to $25,000).

Phoenix Single Family Rentals in Maricopa CountyIndividual single family homes that are currently listed for rent in Maricopa County (per MLS) are detailed on the map below. The majority of rentals in the central Phoenix area are in the $1,000 to $1,999 range (orange), while higher priced rentals in the $2,000 to $2,999 range (yellow) are concentrated in Tempe, Chandler, North Phoenix and Sun City/ Surprise/ Peoria. Scottsdale clearly offers higher priced rentals, with many priced at $5,000 and up (purple).

Single Family Rental Listings Summary

Source: MLS, Zillow

Product Examples

Single Family Rental Community Profile: Avilla Preserve

Source: Avilla Homes

184 units93% leased1, 2, 3 bedrooms$965 - $1,350/mo.Tucson, ArizonaOpened 2013Detached garage

Duplex Rental Community Profile: BB Living at Vistancia

136 units90% leased3-4 bedrooms$1,500 - $1,700/mo.

Peoria, ArizonaOpened Early 20161,500 – 1,600 SF

Townhome Rental Community Profile: BB Living at Verrado

Buckeye, ArizonaOpened March 20171,750 – 2,470 SF

135 unitsAttached garage$1,500 - $1,950/mo.

The Compelling Case for Purpose Built SF Rental

1. Expands community segmentation2. Appeals to multiple market segments3. Product flexibility

• Detached “deconstructed” apartments (SF with attached 2-car garages)• Attached: townhome or duplex• Note: think about garage impacts

4. Economic motivations for residents• No down payment• No mortgage qualifying process• Monthly payment driven

5. Sociological motivations for residents• Flexible: can “test drive” a location• Entré to a community• Can present a higher quality lifestyle than what a purchase would afford

6. Economic considerations for owner/landlord• SF renters stay in place longer than apartment dwellers• SF renters also typically have higher incomes than apartment renters• Purpose built SF detached has much lower maintenance costs than older

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The Competitive Landscape for Renters