When the wave of millennials and Gen Zers hit the age of starting families collided with a rise in working from home, the demand for build-for-rent housing spiked - so much so that it created a new asset class akin to what the shopping mall was in the 1960s.
Built-for-rent (BFR) communities are single-family rental homes clustered in a professionally managed community with amenities such as swimming pools, tennis courts and dog parks. With no maintenance costs, homeowners association fees or mortgage payments, BFRs have become a more economical alternative to homeownership that still gives young families the space they need to grow.
"The real estate industry births a new asset class every decade," said Ben Miller, co-founder and CEO of Fundrise, an online investment platform that has about 6,000 BFR units in about 60 communities throughout the Sun Belt.
Fundrise started investing in BFR communities, also known as built-to-rent (BTR), after seeing the first-floor units with entrances facing the street in an apartment property it built lease faster than the upper levels.
"Usually with apartments, the higher floors lease up, but that wasn't the case with this project," Miller said. "We set off on a mission of trying to deliver what people wanted. BFR is the solution people want. They want homes with backyards and more space than you can rent."
Built-for-rent homes are different than single-family rentals because they are built as communities. Fundrise has found the building communities with 100 to 200 homes is optimal. But starting new projects now is difficult because of high interest rates and the cost of materials and labor.
As for single-family rentals (SFRs), institutional investors started purchasing properties during the Great Financial Crisis in 2007 and 2008 when many homes were being foreclosed on. With foreclosures down, institutional investors are now looking to distance themselves from SFRs because of the political backlash they've experienced from gobbling up single-family homes.
But because they still have to deploy their capital somewhere - and it's not going into office buildings - institutional investors are now delving into the BFR market, Miller said.
"That allocation needs to go into something else," Miller said. "Where is it going to overflow? BFR and building data centers for AI. It's the supply of money that drives what gets built, not what demand is. There's a supply of capital for build-for-rent, and the consumer does want it."