Oliver Chang, the former head of US housing strategy at Morgan Stanley, has launched Sylvan Road Capital, an Atlanta-based asset management firm that expects to invest more than $1 billion to buy and renovate distressed single-family properties in the US over the next two years.
Initially, Sylvan Road expects to acquire more than $300 million in single-family homes with a capital commitment from an undisclosed private equity firm. Plans are to raise a new investment fund to support the strategy, according to media reports.
Chang’s partners in the new venture are Robert Lee, Sarah Lee and Gavin Kleinknecht, formerly the principals of Delmar Realty Advisors, an Atlanta-based owner and manager of single-family rental homes in the Southeast. The trio collectively has built more than $100 million in new single-family homes and raised more than $1 billion in real estate investment funds.
“America is moving toward a ‘rentership society’, and I believe the opportunity to purchase and professionally manage single-family rental homes represents one of the most compelling investment opportunities across all asset classes,” Chang said in a statement. “My partners have been in the single-family real estate business for nearly two decades and have built a best-in-class acquisition, renovation and management platform specifically designed for these properties.”
Chang had served as a housing strategist at Morgan Stanley since 2008, and most recently was the firm’s head of US housing strategy, advising institutional investors and US housing agencies, before leaving to start his new venture in May. While at Morgan Stanley, he became known for his extensive research on the single-family housing market, including an October report that pointed to single-family real estate as being in the early stages of developing into a new institutional-owned asset class.
“Single-family rental total returns offer lower volatility and outsized returns versus other major asset classes, even when accounting for the housing bubble and subsequent declines,” Chang wrote in the October report. “Returns also have low correlation to other major asset classes.”
The report had predicted increasing investment from private equity capital – either in the form of limited partner investments through funds or joint ventures between operators and capital providers. Indeed, Waypoint Real Estate Group, an Oakland, California-based private equity real estate firm that invests solely in foreclosed homes to rent, and GI Partners, the Menlo Park, California-based private equity firm, announced in January the formation of a partnership to acquire single-family rental homes in the US. Under the partnership, GI is committing up to $400 million on behalf of its GI Partners Fund III through a separate account with Waypoint.
In May, the Alaska Permanent Fund’s board of trustees approved a $400 million allocation to American Homes 4 Rent, a Malibu, California-based firm, to purchase portfolios of vacant homes and manage those assets as rental properties. Meanwhile, other private equity real estate firms such as Colony Capital and Rialto Capital have been building portfolios of single-family homes, largely through acquisitions of distressed debt.