The severe housing shortage, high interest rates that keep renters from homebuying, as well as the “Great American Move,” have all contributed to the growth of the BTR sector across the country in the past few years. Today, BTR demand is holding steady, with Sun Belt markets remaining a hotspot for residents and developers alike.
Focusing primarily on these high-demand markets, multifamily developer and investor EMBREY entered the BTR sector back in February 2022. Currently, the firm has three projects under construction, and is cautiously seeking new SFR ventures across the Sun Belt, a region that has benefited from strong economic growth and favorable demographics.
With an extensive experience in residential development, EMBREY’S Senior Vice President of Development Jeremy Williams weighs in on the area’s unceasing allure, and talks about his firm’s expansion strategy.
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What is driving the Sun Belt multifamily market today and the BTR market, in particular?
Williams: In-migration, job growth and favorable weather are driving multifamily growth in the Sun Belt. Texas and Florida have done an especially good job of incentivizing companies to relocate. Families are finding a lower cost of living in the Sun Belt and turning to BTR because they want to live in a home, but interest rates and a limited supply are keeping them from buying.
Besides the pandemic-induced need for more space, what other factors contributed to the significant expansion of the BTR market in the Sun Belt over the past few years?
Williams: There are two main factors. Historically, the BTR space was predominantly mom-and-pop owners who offered nice rentals but very few or no amenities. Secondly, institutional investors are now interested in these properties so they are adding luxury amenities that you would normally find in nearby garden apartments.
Considering the anticipated increase in demand for BTR product over the next decade, what strategies are you implementing to accommodate the growing demand, and maximize your business potential?
Williams: We are primarily focused on finding great real estate. EMBREY raised more than $160 million in a fund dedicated to our BTR platform, allowing us to move quickly where others might have moved forward with less certainty. These are locations with good employment centers, healthy long-term housing fundamentals and markets with limited rental supply.
Can you expand on the Sun Belt areas/markets you are focusing on? What factors are you considering when choosing a target market?
Williams: We are focused primarily on the major Texas metros with a three-year plan of expanding into our other markets including Tennessee, Florida and North Carolina, targeting four to five BTR starts a year.
We consider the local rental supply, job growth, demographics, access to major roadways and proximity to grocery stores when choosing sites.
What do renters want today? How have their needs and preferences shifted in the past years, and how have you adapted to meet their demands?
Williams: Renters want safety, security, affordability, peace of mind and a good quality of life. Many potential buyers are priced out of homeownership with the increase in interest rates, inflation and home prices, yet they still want that experience. Not having neighbors live above or right next to them is very appealing to most renters.
The number one complaint in a typical apartment is noise and most BTR designs eliminate that concern by offering detached or duplex rental homes. On average, 75 percent of our renters have a pet and our BTR communities incorporate private yards into every unit. Also, there are attached garages in a professionally managed community with no maintenance responsibilities on the resident.
We offer managed Wi-Fi in our communities when residents move in and have gigabit speed service immediately without the hassle of setting it up themselves. There are electronic locks at entry doors, entry gates and pedestrian gates, as well as Wi-Fi-enabled smart thermostats in units.
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You recently unveiled plans for your third BTR project—Collection at Boerne, a 214-unit community in Boerne, Texas. Can you share some details about the development and its unique features?
Williams: Collection at Boerne is a boutique rental community with Hill Country charm featuring stone and stucco exteriors. The interiors are an understated elegance layered with rich, warm wood tones, iron detailing and gold accents. Many units have attached private garages and select three-bedroom units will have two-car garages.
The residents will have access to a 5,100-square-foot clubhouse featuring a state-of-the-art fitness center, outdoor yoga lawn and large resort pool with views of treelined Browns Creek. This creek is part of Boerne’s future hike and bike trail system to which residents will have direct access. The site features a large dog park and pocket parks focusing on preserving many of the existing mature trees on site.
Please share more about your new development plans in the BTR sector for the next few years. Is the high interest rate environment impacting those plans in any way?
Williams: Texas, Tennessee, Florida and North Carolina are where we will concentrate our development energies over the next several years. The high interest rates have reinforced our strategy to be wise in our site selection and conservative in our underwriting. Next year will be EMBREY’s 50th anniversary and we have consistently delivered returns to our investors in all market conditions, and we anticipate that continuing.
To what extent do you expect the Sun Belt BTR market to be impacted by the ongoing economic uncertainty? What are your expansion plans for the second half of the year?
Williams: Sun Belt states have generally fared better than others economically and the continuing increase of BTR projects show bank and institutional capital interest for this multifamily segment. We expect to close three deals in Texas in the second half of the year as BTR demand remains strong.
