The Build-to-rent sector is very appealing

Dear CPI Capital newsletter subscriber,

As mentioned in last month’s newsletter, CPI is always looking for new investment opportunities. We can be flexible about the choice of sector we invest in as it’s the asset and the returns which can be generated which count the most to our investors,

After having identified a number of compelling reasons, for some time, we have been looking closely at investment opportunities in the Build-to-rent (“BtR”) sector. For those not so sure, BtR properties generally refer to single family residences (“SFR”) built specifically to be rented and not to be sold or for owner occupancy.

How’s the BtR market been performing?

Demand is up

Since the start of the pandemic in early 2020, demand for BtR properties has risen sharply as more and more people are being forced to work from home or wish to “escape” from more urbanised living environments. Most tenants have been seeking larger liveable areas and self-contained private (ie not shared) spaces for themselves and their families.

Others are turning to rentals as they are being priced out of homeownership plus, with more and more retirees looking to cash out their property assets, a higher proportion of the “silver market” are looking to rent.

In many cases, BtR rentals offer a flexible leasing solution with no down payments or expensive closing costs, and owners taking care of maintenance and repairs—and, hence, the appeal is compelling to certain demand sectors.

Rentals are up

Over the last 4-5 years the BtR market has been growing rapidly and, between 2017 to 2019, blended rent growth averaged 4.1%.

In fact, over the last four quarters, rents have increased 6.3%, or an increase of 1.5 times the rent trend prior to commencement of the pandemic. In the third quarter of this year, BTR product rents grew 8.6%, meaning an annual increase of some 13%

Occupancy is up

It’s not only rentals which have risen, but so has occupancy, as properties in the BtR sector have been outperforming other key occupancy trends. Indeed, the seasonally adjusted BtR occupancy for the third quarter 2021 was 98%, a record high.

Risk adjusted returns are up

On average, the expected risk-adjusted returns on BtR investments is 8%, higher than the weighted average return of 6.1% across all sectors.

BtR construction starts are up

It is estimated that almost 100,000 BtR properties started construction in 2021 making the sector the fastest-growing housing sector in the country, some 6% of all homes being constructed in the United States.

Available investment capital amounts are up

Not surprisingly, with such strong and sustained fundamentals, institutional capital is increasing its exposure to this asset class and some estimates put amounts of such capital allocated for BtR projects at around $75 billion.

The BtR sector is currently proving to be one of the strongest markets in terms of returns for investors, seeing sustained demand, relatively short supply and rapid rental increases.

CPI is carefully studying a multitude of BtR opportunities which have been presented to us and we will be reporting further when the “right” opportunity has been found which meets our rigid investment criteria.

Yours sincerely,

– Ava Benesocky
CEO, Co-Founder Canadian Passive Investing

– August Biniaz
Chief Strategy Officer, Co-Founder Canadian Passive Investing