Allianz Real Estate and Centerbridge Partners joined forces with one of the biggest homebuilders in the US last week to create what figures to be the largest private equity platform targeting single-family rentals.
Sponsored by the housebuilder Lennar Corporation, the vehicle, Upward America Venture, has $1.25 billion of equity at its disposal and will look to acquire as much as $4 billion of purpose-built rental home communities.
The partnership comes on the heels of a rise in institutional investment activity in the single-family rental space. Last year, marquee managers such as JPMorgan Asset Management, Brookfield Asset Management, Nuveen Real Estate and Blackstone made nine-figure commitments to the sector. Boston-based Rockpoint Group raised the stakes in October by rolling out a pair of large joint ventures and declaring its intention to increase its exposure to the property type from zero to $2.5 billion.
Karen Horstmann, head of acquisition for Allianz Real Estate in the US, said what sets Upward America apart from other recent ventures in this space – aside from its scale – is its access to Lennar’s development pipeline. Allianz has committed $300 million of equity to the venture.
Last year, Florida-based Lennar delivered more than 50,000 total homes, most of which were for sale. For this venture, it already has 3,000 homes in 27 communities in the works, co-chief executive Rick Beckwitt said during the company’s earnings call last week. He said the value of that pipeline is roughly $900 million. “As housing needs and demographics continue to evolve, we believe that the single-family rental sector will continue to outperform,” he said.
Lennar will build the homes through its usual financing methods, but rather than selling each one to an individual buyer, it will sell whole neighborhoods to the venture, Horstmann explained. This means Lennar will continue to shoulder the development risk in exchange for a guaranteed exit that still allows it to have a small equity stake – Beckwitt said the homebuilder’s peak capital commitment to the venture would be $50 million.
Horstman said the firm provides the venture with high-quality assets and attractive pricing without the risk associated with a traditional build-to-core strategy. The vehicle also gives Allianz the ability to influence elements of the developments, such as their adherence to its environmental, social and governance mandates.
“It is the first of its kind, national, single-family, build-to-rent platform,” Horstmann told PERE. “We have core product, the ability to develop new without development risk, and Lennar’s construction and the ongoing operation of the homes reflect our ESG priorities. It’s all a very elegant means to create this long-term portfolio in a developing sector.”
The venture has a 12-year lifespan, Beckwitt said during the earnings call, with a four-year deployment window. But Horstman said Allianz is approaching the platform as a long-hold investment for core-like returns.
Lennar has dabbled in single-family rentals since 2015 when it opened Frontera at Pioneer Meadows, a 236-home community outside Reno, Nevada. Beckwitt said adding capital from Allianz, Centerbridge and other institutional investors will enable Upward America to “quickly scale.” He noted that the platform will also be able to acquire other properties from outside sellers.
Horstmann said the Upward America venture is an expansion of Allianz’s ongoing relationship with Lennar, which dates back to 2016 and had focused solely on the multifamily sector.
The German firm is hardly the only institution to broaden its residential investment mandate as demand soars for detached homes in the US. At a little more than 1 million, the current inventory of available homes is at its lowest level since the National Association of Realtors began tracking it in 1999. As a result, private market strategies targeting the sector have risen to new prominence.
Earlier this year, New York-based JEN Partners closed its latest fund focused residential land on $550 million, surpassing its $500 million target less than six months after being launched. The vehicle, JEN VII, acquires raw land and turn it into shovel-ready lots for homebuilders. It had an 85 percent renewal rate among its investors.
GTIS Partners, another New York-based firm, takes a three-pronged approach to investing in single-family homes. Like JEN, it buys land to sell to homebuilders. It also finances for-sale developments and builds its own rental communities. “Covid has been the great accelerator,” Tom Shapiro, president and chief investment officer for GTIS, told PERE. “The trend of people moving to Sunbelt markets or just moving out of cities into suburbs has increased. With kids doing school from home and both spouses working from home, people are realizing that its hard to have a family in a small apartment.”