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Episode 12 | Build to Rent

Episode Summary: 

Hosts Jack & Craig discuss the Build To Rent Space with guests Fred Lewis of the Dominion Group and Dennis Cisterna of Guardian and Sentinel Net Lease. Is the BTR business model still viable today? The hosts discuss the challenges to BTR in 2023 and how some investors are still making it work. 

Overview of Episode 12

In this episode, Craig Fuhr and Jack BeVier explore the Build to Rent (BTR) market with guest Dennis Cisterna. The discussion focuses on how this growing sector is transforming housing while addressing market challenges. Above all, they analyze Build to Rent’s potential amid shifting economic conditions.

Evolution of the Build to Rent Sector

Dennis outlines his extensive experience in Build to Rent, starting with buying inventory from builders and expanding to full community developments. This strategy evolved as rental demand surged, particularly in regions like Texas, Florida, and the Carolinas.

Demand for BTR Properties

Build to Rent is thriving due to rising homeownership costs and changing demographics. As a result, young renters prefer flexibility over ownership, boosting demand. Additionally, Build to Rent offers a single-family lifestyle that aligns with renters’ needs.

Challenges of Rising Interest Rates

Rising interest rates have created financial hurdles for Build to Rent projects. Consequently, higher borrowing costs compress yields, making projects less feasible. Investors must adopt creative strategies to navigate these economic shifts.

Key Market Insights and Strategies

  1. BTR remains viable for investors focused on long-term value and efficient land acquisition.
  2. Secondary markets, like the Midwest, offer lower barriers to entry and stable yields.
  3. Builders are partnering with rental operators to secure bulk sales and mitigate risks.

Differentiating Build to Rent Products

The BTR model encompasses both individually deeded lots and multi-family developments. While both approaches succeed, individually deeded lots provide flexibility and align with community needs. However, financing constraints shape investment decisions in each model.

Rising Competition in the Build to Rent Market

As BTR gained popularity, competition surged, driving up land prices. By comparison, early investors achieved higher margins through favorable acquisitions. Today, operators must carefully assess projects to maintain profitability.

Future Outlook for Build to Rent

Looking ahead, patient investors like institutional funds are well-positioned to dominate BTR. These groups focus on long-term returns and avoid speculative bets. However, for smaller operators, adapting to the current market requires disciplined underwriting and strategic execution.

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