As we were moving away from the winter blues and heading into spring warmer weather, Congress approved a massive $1.9 trillion stimulus package to help people work through the pandemic. The economy is poised to regain momentum later this summer, as the widespread distribution of vaccines gradually allows a wide variety of businesses to open back up. Federal Reserve Chairman Jerome Powell has stated that the Federal Reserve will continue to provide the economy with the requisite support for as long as it needs. The economy is far from fully recovered despite the recent improvements. Nevertheless, the U.S. Economy has rebounded more quickly than generally anticipated and looks to be strengthening thanks to the widespread vaccinations, relaxed business restrictions. Government stimulus helped spur the early stages of an economic boom. The Fed has continuously held the benchmark interest rate near zero since the Covid-19 pandemic crashed the U.S. economy a year ago. Most central bank officials don’t expect to see the rate rise until 2024 at the earliest. The Fed also plans to continue purchasing at least $120 billion worth of Treasury debt and mortgage-backed securities on a monthly basis until the economic recovery becomes widely recognized. We started to see jobless claims fall to their lowest level of the pandemic recently as more robust hiring and consumer spending revives the U.S economy.
Now, let’s switch gears and talk about real estate.
Institutions across the board are now ramping up their interest in single-family rentals (SFR)!
Demand for residential real estate in the U.S. is getting stronger and stronger! Commercial real estate investors are diving headfirst into the hottest new asset class: single-family rentals (SFRs). Traditionally institutional investors flocked to U.S. apartments to seize diverse investment opportunities and now we are seeing a drastic shift of more institutional capital being infused into single-family homes. Warren Buffet famously said during the financial crisis if he had a way to manage single-family homes, he’d buy a couple hundred thousand of them. Technology has played a pivotal role in the take-off of the SFR industry, especially when it comes to the management of properties. Investing in single-family homes is nothing new; the prevalent skepticism has always hinged on scalability. The trend has been growing of more and more multifamily operators entering the SFR space. Commercial Real Estate Brokerages such as Jones Lang LaSalle (JLL) have recently established the National Multi-Housing Group, solely dedicated to Single-Family Rentals (SFR) to cater to the increased institutional investor interest, which traditionally consisted of mom-and-pop investors. Different capital sources such as REITS, private equity funds, insurance companies, pension funds, and diversified real estate funds are all allocating monies away from other real estate sectors into single-family rentals.
What we find interesting is that the magnitude of institutional interests is intensifying, but the number of institutional platforms with a deep track record and size in the asset class is still relatively scarce. We experienced the same dilemmas as some of the larger investors! Our goal was to find a new private equity firm that can actually pull off the business plan of owning tens of thousands of single-family homes. We ended up closing on two small trial funds with TCS Anika Homes before they brought onboard institutional capital to take them national. Stay tuned for our case study in the near future.
The Aggregation Fund is doing phenomenal for us. With a keen focus on residential housing., our operator has a unique platform allowing us to co-invest on the general partner level. This is a tax-advantaged fund that pays out a current 10.5% to 12% preferred return with a targeted annualized return of 18% to 21% over a 5 year period, depending on the investment amount. An early redemption option is also available.
Our primary interest lies in residential real estate, with a goal to diversify our capital on all levels of the capital stack passively or even through direct investments.
A new institutional debt platform is in the works with a focus on business purpose loans. The ultimate goal is to create a liquid debt investment vehicle capitalizing on residential real estate. We will keep you posted on the progress down the path.
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