When describing the aspirations he has for his company, American Homes 4 Rent, Co-Founder and CEO David Singelyn said, “success is providing something of quality to people, and it starts with quality housing. And if we do not have quality housing, then we’re not going to be a long-term company.” A pioneer within the single-family rental (SFR) industry, Mr. Singelyn started his career in the financial channels of real estate as an auditor with Ernst and Young before cutting his teeth on the operations side at Public Storage in the late 1980s. After serving as President of Public Storage Canada, he co-founded American Homes 4 Rent with Wayne Hughes in 2011.
In the early 2010s, Mr. Singelyn saw a unique opportunity in the SFR industry. As an executive at a publicly-traded storage REIT, he saw a behavioral shift between generations. He witnessed the Baby Boomers, a possession-accumulating generation, pay for their belongings six times over in self-storage rental payments. Millennials, on the other hand, have stereotypically held a greater focus on quality and experiences of life; they change jobs more frequently, accumulate fewer assets, and need smaller living arrangements. As a result, the value differences between these two generations have increased demand in the rental market. Additionally, the market had also just undergone a significant pricing event, known as the housing bubble, where housing prices dropped 20-30% in value, and many foreclosures occurred across the country. Consequently, the inventory for the sale of single-family homes was at an all-time high.
Before institutions entered the single-family rental market, there were roughly 116 million rentals on the market, with about 13 million homes listed as single-family rentals. If you roughly averaged $170,000 per home, the SFR market equated to $2.2 trillion. Having recognized this as an entrepreneurial opportunity, Mr. Singelyn took a step further to measure several considerations of risk and reward. First, because he and Mr. Hughes would be buying the homes at such a large discount to replacement value, it would be very hard for new supply to compete with them – meaning there was limited downside risk. Secondly, although real estate is traditionally valued at its income magnified by a market multiple, a single-family home is viewed like a commodity rather than a typical income-producing asset. Hence, the necessity to apply different fundamentals to calculate yields.
In their next growth step, Mr. Singelyn and Hughes regarded technology as high-importance and an essential advantage to building a platform. When underwriting 50,000 homes per month, as was typical during the American Homes 4 Rent launch period, manually running through the data of government records and home-owner association documents was entirely unfeasible. Moreover, suppose these documents were not available online, potential renters could not digitally access homes and easily fill out leasing applications without the use of mobile apps and Apple IDs connected with credit cards on file. Without today’s modern technology, profitability within this model would have been unachievable.
Lastly, to fund their computer systems, management teams, operational teams, third-party managers, and the costs of being a public company, American Homes 4 Rent would need to rely on scale. They needed to buy as many assets as fast as they could. In 2011
, Mr. Singelyn put this model into motion by purchasing three homes in Las Vegas and three homes in Phoenix. By May 2012, his team was buying roughly 2,000 homes a month. Today, 9 years later, American Homes 4 Rent is in 22 states and 35 markets. They have successfully maneuvered challenges such as internalizing their third-party management teams and providing aid to tenants during periods of emergencies such as Hurricane Harvey.
However, real estate is a cyclical business. And while single-family assets were plentiful in the early 2010s, inventories today in 2020 are at an all-time low. While their peers on Wall Street view homes as opportunities to trade, Mr. Singelyn and his team believe that if they can build assets, they will be able to build better quality homes that are more attractive to renters. From a rental standpoint, they would have consistent inventory delivery for continuous growth. Economically, their development profit would be better than a national builder because they would not incur the cost of sales and marketing. And, lastly, they could build better quality homes with a greater sense of neighborhood community. The company is currently building in 15 markets and has opened 60 communities.
In the last 10 years, the single-family rental market has gone from 13 million homes to 17 million, and occupancy has increased at the same time. With 53,000 homes under management, American Homes 4 Rent holds less than one-third of 1% of the current SFR market share. Since the onset of the COVID-19 pandemic, Mr. Singelyn has seen an increase in single-family rentals as more people are moving from urban centers – now that they have the flexibility to work remotely. While the growth of SFR has been astounding in such a short time, Mr. Singelyn still estimates that housing supply shortages in the United States will last for at least 10 years and that this industry is still in its earliest innings. Wherever the industry is headed next, expect American Homes 4 Rent to be at the forefront.
