BGO expands into American SFR, chasing ‘sticky tenants’

BGO is ramping up its presence in the American residential space, making its first foray into single family rentals in the Sun Belt.

The New York-based firm, which has some $40 billion assets under management in the US including around 17,000 multifamily units, announced last week it has formed a strategic partnership with Oakland-based manager and operator 1Sharpe.

BGO has committed to invest $500 million through the partnership, which involves BGO buying a 25 percent stake in 1Sharpe’s single family rental business. “The affordability index of renting versus owning is the lowest it’s been this century. This is caused by high interest rates, high housing prices, new home supply shortages,” Chris Niehaus, a managing partner at BGO, told PERE. “So it creates a very interesting investment opportunity where those who would like to have a home cannot afford it, but they will want to rent it.”

The partnership has closed on its first acquisition, a newly built, 64-home community located in metro Phoenix, and has a pipeline of opportunities in key Sun Belt and Western US markets, the firm said in a statement.

Niehaus said the Phoenix market has experienced “tremendous” growth in jobs and population, and the new community is almost fully rented. He said BGO has been actively looking at single family homes for more than three years.

“We feel it’s a very strategic sector for us,” he said, adding that single family renters stay in a home for an average of three years. “They tend to be sticky tenants. So if you move into a house and you’re renting with a couple kids in a good school district, you’re not going to be like your average renter and leave a year later.”

The single family rental market has drawn increasing interest from institutional capital in recent years. The asset class has increasingly been viewed as attractive because of rent growth, low supply and would-be home owners priced out of homeownership. Similar to multifamily, rents growth has slowed for single family rentals in the last year, but as of October 2023, the median monthly single-family rents had increased by about $500 nationally since February 2020, according to CoreLogic.

“The US has tremendous difficulty in getting land entitled to build single family homes. Challenges include government regulation, local community opposition, obtaining bank construction loans and things like that. So, there’s a lot of factors that have caused a continued undersupply in the sector,” Niehaus said. “We’re right now buying with unlevered capital, because of where the interest rates are. We think this is a great time to start investing, we think we’re at a good point in the cycle.”