Opportunities Currently Available

Tennessee

• Seeking home builders that construct 100 or fewer homes per year in Nashville, TN, or other southeast cities for infill projects

• 14 contiguous townhomes in Cookeville, TN

• 400+ acre site to design a master-planned community in Dickson, TN

• 250+ single-family residential and townhome lots in Nolensville, TN

• Off-market land priced at $1M and zoned for 150 SFR or duplex units in Bellevue, TN

• Off-market opportunity for 60 townhome units in Lebanon, TN

• Land zoned for 200-250 stacked apartment units in Antioch, TN

• 73 townhomes in Old Hickory / Nashville, TN. The units are within a subdivision

Alabama

• 400+ entitled lots in Calera, AL

• 516 raw acres in Hazel Green. Potential PUD opportunity

Georgia

• 70-90 townhome paper lots & 100+ apartment unit sites in North Atlanta

Texas

• 150+ townhome lots in Red Oak, TX

Pricing available upon request

Who Knew That Build-To-Rent Operators Would Be Selling Lots to Homebuilders?

This wasn’t hard to imagine happening if a few very important variables changed. Real estate debt and equity pricing and terms adjusted. The lack of proper underwriting of project fundamentals created a buying spree of sorts for BTR operators trying to deploy capital. Wall Street LBO veterans started to buy raw land when they weren’t experienced in land development. Some hired enough quality talent to get the job done, but many didn't. This has created an opportunity for home builders nationwide to access a new segment of “land developers” from Wall Street who never expected to be doing just that.

2023 has shown that many BTR players must shift their business models and focus on one segment of the land development and home-building ecosystem. We're pleased to hear BTR executives stop saying they are developers or builders and instead say they are "asset allocators." It's unfortunate that many of these inexperienced groups decided to squander their one shot at doing business with the people on the ground who build homes and develop the land.

We're interested to see how this asset class evolves over the next 16 months.

-BFR Partners

Opportunities Currently Available

Tennessee

• Seeking home builders that construct 100 or fewer homes per year in Nashville, TN, or other southeast cities for infill projects

• 250+ single-family residential and townhome lots in Nolensville, TN

• Off-market land zoned for 150 SFR or duplex units in Bellevue, TN

• Off-market opportunity for 60 townhome units in Lebanon, TN

• Land zoned for 200-250 stacked apartment units in Antioch, TN

• 73 Townhomes in Old Hickory / Nashville, TN. The units are within a subdivision

Alabama

• 1,000+ entitled lots in Calera

• 516 raw acres in Hazel Green. Potential PUD opportunity

• 40 single-family units in Lincoln. Delivered as an entitled lot or a finished pad

• 7 acres in Calera off Interstate 65. Zoned residential consisting of 6-8 parcels. Commercial project

• 24 single-family lots in Vance. The seller is willing to take it to zoned or entitled

Pricing is available upon request

How Is the Debt Market Affecting Build-To-Rent?

Higher interest rates are making it more expensive to finance BTR projects. This is because interest rates are a major component of the cost of debt, and they have been rising in recent months. As a result, BTR developers are having to pay more to borrow money, which is putting upward pressure on the cost of their projects.

• The availability of debt for BTR projects is becoming more limited. This is because some lenders are becoming more cautious about lending to BTR developers, given the rising cost of debt and the uncertainty in the economic outlook. As a result, BTR developers may have a harder time finding financing for their projects.

• The terms of debt for BTR projects are becoming more restrictive. This is because lenders are demanding more collateral and covenants from BTR developers, in order to protect themselves from the risk of default. As a result, BTR developers may have to give up more control of their projects in order to get financing.

Overall, the rising cost of debt and the tightening of lending standards are making it more challenging for BTR developers to finance their projects. This could slow the growth of the BTR market in the near term. However, the long-term demand for BTR housing is still strong, so the market is likely to continue to grow in the years to come.

Here are some additional factors that could affect the debt market for BTR projects in the future:

• The pace of economic growth. If the economy grows at a healthy pace, it will likely lead to higher demand for BTR housing, which could support the growth of the debt market for BTR projects.

• The performance of the stock market. If the stock market performs well, it could lead to more institutional investors entering the BTR space, which could also support the growth of the debt market.

• The regulatory environment. Changes in the regulatory environment could affect the availability of debt for BTR projects. For example, if the government were to impose stricter lending standards for BTR projects, it could make it more difficult for developers to get financing.

It is important to note that the debt market is constantly evolving, so it is difficult to predict with certainty how it will affect the BTR space in the future. However, the factors discussed above are likely to play a role in shaping the debt market for BTR projects in the years to come.

What Happens to Build-To-Rent When Prices Drop Significantly?

When prices drop significantly in the real estate market, the build-to-rent sector can be affected in several ways:

Reduced Profit Margins: A significant drop in property prices can erode profit margins for build-to-rent projects. If developers have already committed to purchasing land or have begun construction at higher prices, the decline in property values can impact the project's profitability. This can make it challenging to achieve the expected returns on investment.

Financing Challenges: Lenders may reassess the viability of build-to-rent projects when property prices drop. They may become more cautious and reevaluate their lending criteria, which can result in reduced funding availability or stricter loan terms. This can make it more difficult for developers to secure financing or renegotiate existing loan agreements.

Occupancy and Rental Rates: Lower property prices can lead to increased homeownership opportunities for prospective tenants. Some individuals who were previously considering renting may now opt to purchase a home due to affordability or investment potential. This can result in reduced demand for rental properties, affecting occupancy levels and potentially putting downward pressure on rental rates.

Investor Sentiment: A significant decline in property prices can impact investor sentiment and confidence in the build-to-rent sector. Investors may be hesitant to allocate capital to projects that are perceived as risky or face potential declines in value. This can result in reduced investment activity and slower growth for the build-to-rent market.

Market Adjustments: In response to lower prices, developers may adjust their strategies. They may postpone new build-to-rent projects, revise rental income projections, or seek alternative uses for their properties, such as selling units individually instead of offering them as rentals. These adjustments can contribute to a slowdown in the build-to-rent sector.

It's important to note that the specific impact of significant price drops will depend on various factors, including the severity and duration of the decline, local market conditions, and the overall economic environment. Additionally, the build-to-rent sector may be more resilient compared to other real estate sectors since it targets specific demographics or offers certain amenities that can still attract tenants, even during periods of price fluctuations.

What Impact Will a Looming Recession Have On Build-To-Rent?

A looming recession could potentially have both positive and negative impacts on the build-to-rent market in the United States.

On the one hand, recessions often lead to job losses and economic uncertainty, which can make people hesitant to purchase a home. This could increase demand for rental properties and make the build-to-rent market more attractive to investors.

On the other hand, recessions can also make it more difficult for people to secure financing, which could slow down new construction projects and limit the supply of build-to-rent properties. Additionally, if the recession is severe and leads to a significant drop in demand for rental properties, it could lead to increased vacancies and lower rental rates.

Overall, the impact of a recession on the build-to-rent market would depend on the severity of the recession, as well as a range of other factors such as interest rates, government policies, and local economic conditions. However, it's worth noting that historically, rental properties have often proven to be more resilient during economic downturns than other types of real estate investments.

The Keys to Land Engineering for Residential Development

Land engineering for residential development involves designing and preparing land for the construction of houses and other related infrastructure. Here are some of the keys to land engineering for residential development:

1. Site selection: One of the most important keys to land engineering for residential development is site selection. Developers should consider factors such as location, accessibility, topography, soil type, and zoning regulations when selecting a site for development.

2. Site analysis: Once a site has been selected, a site analysis should be conducted to determine its suitability for development. The analysis should include soil tests, geotechnical surveys, environmental assessments, and other studies that will help identify any potential issues that need to be addressed before development can begin.

3. Grading and drainage: Grading and drainage are critical aspects of land engineering for residential development. The land should be properly graded to ensure that water drains away from the houses and other infrastructure. This will help prevent flooding and other water-related issues.

4. Utilities: Developers should plan for the installation of utilities such as water, sewer, and electricity. These services should be designed to meet the needs of the residents and the local regulatory requirements.

5. Roadway design: Proper roadway design is important for residential development. Roads should be designed to provide safe and efficient access to houses and other infrastructure. This will help ensure that emergency vehicles can access the site in the event of an emergency.

6. Environmental considerations: Developers should consider the impact that their development will have on the environment. They should take steps to mitigate any negative impact and promote sustainability.

7. Community amenities: Developers should also plan for community amenities such as parks, playgrounds, and other recreational facilities. These amenities will help create a sense of community and enhance the quality of life for residents.

What Is Causing the Build-To-Rent Slowdown?

1. Supply chain disruptions: The COVID-19 pandemic has disrupted supply chains globally, leading to shortages of building materials and delaying construction projects.

2. Rising construction costs: The cost of labor and materials has increased significantly over the past year, making it more expensive to build new rental properties.

3. Reduced demand: Some experts believe that demand for build-to-rent properties may be decreasing as more people opt to buy homes instead of renting.

4. Economic uncertainty: Uncertainty in the economy, particularly in the wake of the pandemic, may be causing some investors to shy away from build-to-rent projects.

5. Regulatory hurdles: Some cities and municipalities may be imposing restrictions or regulations that make it more difficult or expensive to build new rental properties.

What Are Some of the Hurdles to Acquiring Land?

There are several hurdles to acquiring land, depending on the location, the purpose of the land, and the regulatory environment. Here are some common hurdles:

Cost: The cost of land can vary widely depending on its location, quality, and intended use. In some cases, the cost of land can be prohibitively high, making it difficult or impossible for individuals or businesses to acquire the land they need.

Zoning and land-use regulations: Zoning laws and other land-use regulations can restrict how the land can be used and developed, making it difficult to acquire land for certain purposes. For example, zoning laws might prohibit commercial development in certain areas, or require that a certain percentage of a property be left undeveloped.

Environmental regulations: Environmental regulations can also pose a challenge to acquiring land, particularly if the land is located in an environmentally sensitive area or if the intended use of the land could impact the environment. These regulations can require costly assessments and mitigation measures, making it more difficult to acquire and develop the land.

Financing: Financing can be a hurdle to acquiring land, particularly if the buyer does not have the necessary funds upfront. Lenders may require significant down payments or collateral to secure the loan, and interest rates can be high.

Legal issues: There may be legal issues associated with acquiring land, such as disputes over property boundaries or title issues, that can delay or complicate the process of acquiring land.

Competition: In some areas, there may be significant competition for available land, making it difficult to acquire land at a reasonable price.

Cultural and social considerations: In some cases, acquiring land may also involve navigating cultural and social considerations, such as negotiating with local communities or addressing historical land-use practices.

4 Ways Rising Interest Rates Affect the BTR Market

1) Increased borrowing costs: BTR developers often rely on debt financing to fund their projects. When interest rates rise, the cost of borrowing increases, which can make it more expensive for developers to fund their projects. This can lead to a decrease in new BTR construction and slower growth in the sector.

2) Higher rent costs: If BTR developers need to pay higher interest rates on their loans, they may need to charge higher rents to cover their costs. This can make BTR units less affordable for renters, which could lead to decreased demand for BTR properties.

3) Competition from other sectors: When interest rates rise, investors may shift their focus to other sectors, such as commercial real estate or stocks, which may offer higher returns. This can lead to reduced investor interest in the BTR market, which can make it more difficult for developers to secure financing and complete new projects.

4) Lower property valuations: Rising interest rates can lead to lower property valuations, which can make it more difficult for BTR developers to secure funding for new projects. This can also make it more challenging to sell or refinance existing BTR properties.

Overall, rising interest rates can have a significant impact on the BTR market, and developers and investors should be aware of the potential effects of changing interest rates on their financing costs, rental rates, and property valuations.

Build-To-Rent isn't always the right decision for all builders.

In recent years, build-to-rent (BTR) groups have gained popularity as an alternative to traditional rental properties. These groups specialize in developing and managing rental properties, with the goal of providing long-term, high-quality housing options for tenants. However, despite the potential benefits of working with build-to-rent groups, many builders and developers are hesitant to do so.

One of the primary concerns that builders and developers have about working with build-to-rent groups is the potential loss of control over their projects. Typically, when a builder or developer completes a project, they sell the units to individual buyers who become the owners of the properties. In contrast, when working with build-to-rent groups, the builder or developer may be required to sell the entire project to the group. This can be a significant loss of control, as the builder or developer may have less say in how the property is managed and maintained over time.

Another concern is the potential impact on the builder or developer's brand. Many builders and developers have established themselves as providers of high-quality, luxury properties. However, build-to-rent groups often focus on providing more affordable housing options, which may not be aligned with the builder or developer's brand. By working with build-to-rent groups, builders and developers may risk diluting their brand and losing their high-end reputation.

Additionally, there may be financial considerations that make working with build-to-rent groups less attractive for builders and developers. For example, build-to-rent groups typically require a lower profit margin than individual buyers, which can be less appealing for builders and developers who are looking to maximize their profits. Additionally, because build-to-rent groups are focused on long-term ownership and management, they may be less likely to engage in speculative development, which can be a more lucrative option for builders and developers.

Finally, there may be concerns about the long-term viability of build-to-rent groups as a business model. While the concept of build-to-rent is relatively new, some industry experts have questioned whether it is sustainable over the long term. For example, if interest rates rise, it may become more difficult for build-to-rent groups to finance new projects. Additionally, if there is a significant economic downturn, tenants may be less likely to renew their leases, which could lead to increased vacancies and financial losses for build-to-rent groups.

We hear many homebuilders and developers complain about build-to-rent operators not keeping their word when they say they will buy homes. This disconnect is a function of improper and untransparent communication between all parties. Ultimately, builders and developers will need to weigh the potential benefits and drawbacks of working with these groups and determine whether it is the right choice for their business.