Sale-leaseback transactions were common in certain areas of the commercial real estate market – and can now spread to other sectors as well. A new analysis Von Trepp Commercial on the single-family home market sees the opportunity for homeowners to use sale-leaseback structures to pull equity out of their homes without having to move.
It is even more important that institutional actors see an opportunity in this area too. An indicator of this interest are Invitation Homes, which according to the Wall Street Journalplans a sale-leaseback program as another channel to expand its 80,000 homes.
The pandemic has catalyzed the potential for sale-leaseback transactions to find a place in the single-family market. While the real estate market is much more stable today than it was during the last recession – when many homeowners faced foreclosure – the market has been stabilized in part by widespread forbearance policies. When these guidelines expire or past due mortgage payments add up, homeowners may be looking for an alternative option. As with a commercial business, a sale-leaseback could help homeowners stay in their homes without taking ownership of a home, says Trepp.
At the same time, the capital markets are showing an increased appetite for this asset class. This year, Trepp data found an increase in CMBS emissions for single-family stores. In 2019, total CMBS issues totaled $ 3.8 billion, and in 2020 through September, CMBS issues totaled $ 5.8 billion for single family businesses. The single-family home CMBS crime rate stayed below 1% during the pandemic, while the overall CMBS crime rate was 9% in August
In addition, single-family operators have less of an impact on rental income than apartment operators, says Trepp, and several operators in this area have reported.
In general, the demand for single-family homes will increase as a result of the pandemic. ONE current report from Real Estate Advisors predicts increasing demand for single-family homes. Millennials in particular will drive this trend. This population is reaching their 30s and 40s and many are planning to raise families. However, affordability issues have displaced them from the home market. Instead, many of these people will be looking for single family home rentals. Rental products in particular will be popular with millennials.
While this trend was already there, the pandemic certainly accelerated it. However, it could change some of the rental patterns as well. For example, as a result of the public health crisis, more millennials may be moving to suburban markets rather than city centers. Millennials are unlikely to venture too far from the city center, however, as population size has already established a preference for communities with a sense of place.