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Chase & American Homes 4 Rent Bank on Changing Renter Habits with Built-for-Rent SFR Plan


May 16, 2020 by Aly J. Yale
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Some major investors are banking on a wave of suburban rental demand once the current health crisis clears up. Just yesterday, JPMorgan Asset Management (NYSE: JPM) and American Homes 4 Rent (NYSE: AMH) announced a joint venture to build 2,500 purpose-built, single-family rentals across the West and Southwest.

JPMorgan's head of real estate, Mike Kelly, says it's a move "to capitalize on an increasing trend among city dwellers to seek additional space and the appeal of high-quality suburban living."

"We see this shift as particularly prevalent among the millennial generation -- the largest U.S. age cohort -- who are looking to transition away from apartment living," Kelly says. "The move towards more spread-out living is also expected to accelerate in the wake of the COVID-19 pandemic, and we anticipate strong occupancy and rental growth rates across properties."

The plan is to start with 34 single-family rentals in the Las Vegas suburbs of Spring Valley and Sovana, Nevada, and then expand out from there. Eventually, the companies plan to target "multiple high-growth markets in the West and Southwest." In total, $625 million has been committed to building the new swath of properties.

The two brands will also utilize American Homes 4 Rent's mobile platform on all new rentals. This allows prospective tenants to tour homes without an agent (thereby maintaining social distancing) and pay their rent online or via automatic billing.

This move may be a particularly smart one in the post-COVID world, as recent data suggests that digital rent payments help tenants stay current when financial times get tough.

Repeating history

It's not the first time American Homes 4 Rent has capitalized on an economic downturn. During the housing crisis, the company bought up foreclosed homes in bulk, turning them into an army of single-family rental properties (SFRs) across the country. The brand currently operates nearly 53,000 SFRs in 22 states.

Invitation Homes (NYSE: INVH) was another to leverage the wave of foreclosures seen around the crash. Despite being sold off by Blackstone (NYSE: BX) late last year, the company has continued gaining ground over the last decade. It's now the single-biggest rental property business in the nation, with more than 72,000 homes to its name.

The recipe must be working, too, because according to the brand's first quarter results, overall revenues are up 3.3%, and rent renewals have increased even more. The company also acquired 500 more properties just last quarter.

But foreclosures aren't anywhere near housing crash proportions -- even despite the economic changes that are afoot. And given the forbearance and deferral options that many lenders and servicers are now offering (or required to offer), they probably won't get that low again.

This means companies like Invitation Homes will need to get creative if they want to keep growing their inventory. And the latest built-for-rent move by JPMorgan and American Homes 4 Rent? That's just one such example of this.

The bottom line

As Dylan said, "the times, they are a-changin'." There's no telling whether this move toward more suburban rentals will pan out or if foreclosures will start to tick up or down in the post-pandemic world. What we do know is that things will be different in the coming weeks, months, and years. And when they do, we'll be here to keep you posted.

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Aly Yale has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.