Developers, investors and architects weigh in on the rising trend.
As we put the pandemic and the Great Resignation behind us, some who moved away from the city core during the early stages of COVID-19 are realizing not only that it can be lonely living in the middle of nowhere, but also that job opportunities can be scarce.
Master-planned communities have been enjoying a resurgence because they are designed with lots of room to spread out, while also providing an ecosystem that supports the career interests of like-minded people and a network for job hunting. The classic choices include buying a house, townhouse or condo—or renting an apartment. Single-family rentals are now becoming part of the mix.
This emerging trend dovetails with the overall growing demand for build-to-rent housing. The $4.4 trillion sector’s fundamentals reveal stability while other sectors face an uncertain economic future. Data a midyear 2022 report from Berkadia shows that average rents have increased by $6 to $2,089 through April of this year. And according to an August 2023 Yardi Matrix report, the sector saw a record 14,858 units completed in 2022 and is on track to match that pace this year, with 6,600 units delivered through June.
A uniform look
Many cities, towns and neighborhoods evolve in an organic way over time. But there is also a long tradition in the U.S., dating back to the 16th century, of managing new development for both form and function. St. Augustine, Fla., is thought to be the first master-planned community in North America.
When the Spanish founded St. Augustine in 1565, they laid the town out following rules that the Spanish Crown issued to colonists in guiding development decisions. The document stated that buildings should have a uniform look for aesthetic reasons. It also mandated a central plaza/common area and even touched on zoning regulations for trades such as slaughterhouse and tanneries.
Today, the REITs that own and operate single-family rentals are creating thousands of new, build-to-rent houses. Shared amenities, such as swimming pools and pet parks, thoughtfully designed curb appeal, while spacious interiors with stylish finishes are making the option popular with those seeking a change from high-rise, urban living. Industry watchers expect to see more self-contained build-to-rent subdivisions pop up within master-planned communities.
“Six, seven, eight years ago, when the build-for-rent industry was starting to gain traction, master-planned communities were a little hesitant to accommodate the concept because they didn’t have a long track record of performance,” said Todd LaRue, managing director, RCLCO. Developers were also concerned about potential conflicts with their single-family owners who might be upset by having single-family renters within the community.
That attitude has shifted dramatically. The build-to-rent industry has evolved and today there are numerous proof-of-concept examples, plus a lot of different flavors of product in terms of density and sizes, according to LaRue.
“I think most master-planned communities are considering including them as part of their development program. It brings in a consumer that might not otherwise have been attracted. It often serves as an incubator for buyers just moving to the market or saving for a down payment,” added LaRue. Also, for investors and developers, it provides another transaction. Land that might otherwise sit vacant for several more years can be sold to a build-for-rent developer, accelerating revenues.
Horizontal apartments
Build-to-rent neighborhoods within master-planned communities rent for a higher dollar amount than similar rental neighborhoods located outside the gates, according to Brad Hunter, president of Hunter Housing Economics. In particular, the cottage home approach, which is also referred to as “horizontal apartments,” is gaining momentum and share within the sector.
“Driven by compelling demographics and a chronic under-building of homes that are appropriate for first-time homebuyers through this whole cycle, $10 billion in equity—plus $20 to $40 billion in debt—is flowing into build-to-rent right now. There is a clear need for more of this type of development, and that has recently attracted the attention of institutional money,” Hunter stated in a column he wrote for Forbes.
For example, a collection of 282 cottage homes for rent, developed by Capstone Communities, offers a gracious lifestyle within Nexton, a master-planned project by Newland Communities, near Charleston, S.C. The 5,000-acre Nexton was named Master-Planned Community of the Year in 2021 by the National Association of Homebuilder.
“The Capstone development offers single-family rental homes in a suburban environment with amenities and services typically found in more urban settings, all of which are highly desirable right now,” said Brent Gibadlo, vice president of operations with Nexton.
In fact, Newland Communities is considering several more build-to-rent properties within Nexton as well as across their national footprint, which comprises 11 states. Some will be designed for a particular demographic, such as 55+ renters, young families and even second-home renters. The latter are typically grandparents who want to be close to their families during certain parts of the year. According to Hunter, segmentation is going to become necessary as more rental communities emerge as part of this accelerating trend.
