The single-family rental sector has grown tremendously in the past few years, supported by renters’ need for more space and the limited supply available. Although 14,581 SFRs in communities of 50 units or more were delivered in 2022—a 46.9 percent increase over the 9,928 SFR units delivered in 2021, according to Yardi Matrix data—demand for this product type continues to be strong.
“Among our BTR neighborhoods, we are still seeing strong leasing demand as we try to keep pace with deliveries for this product. Lack of supply continues to be a driver in this space,” Brian Oates, executive managing director of development at RangeWater, told Multi-Housing News.
RangeWater is expanding as a BTR owner and developer, after launching its in-house construction division a year ago. Currently, RangeWater has more than 1,000 homes underway. Additionally, the organization’s management branch has also been growing, with BTR assets now representing 20 percent of the company’s portfolio.
Some of the company’s projects feature both SFR and traditional multifamily components, an unconventional approach that Oates expands on in the below interview. He also reveals details about RangeWater’s latest moves and weighs in on how the current economic challenges are impacting residential development.
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RangeWater oversees almost 100,000 apartments and BTR units across the Sun Belt and Mountain West. How is demand holding up?
Oates: Demand is very strong for our growing portfolio of multifamily and build-to-rent projects. We are experiencing some seasonality specific to multifamily which is not abnormal, but we’re following leasing and occupancy trends closely as we approach warmer weather. The next two quarters will be important in identifying how much of the market is seasonality versus reduced demand due to higher costs and inflation.
In the past couple of quarters, have multifamily fundamentals changed in the main markets you are present in?
Oates: There is some softness in the market, but it remains to be seen if that is due to the economy or expected seasonality. My instincts lead me to believe it is a combination of both, but we need more data in the spring leasing season to confirm.
While the fundamentals hold strong in our Sun Belt markets, we do have challenges relative to the significantly higher costs to build. There is a much smaller spread between the cost of a new product and what the sales value is for a Class A multifamily asset today. In some instances, it costs more to develop than it is to buy an existing stabilized asset due to the cap rate expansion over the last nine months.
Considering these high costs, which Sun Belt markets present opportunities when it comes to multifamily investment and development?
Oates: RangeWater has not traditionally focused on macro markets, but instead on submarkets and micro markets across the Sun Belt and Mountain West with fast-growing MSAs. We believe the long-term fundamentals make sense in all the markets we currently hold a presence in—Atlanta; Charlotte, N.C.; Tampa, Fla., Dallas; Phoenix and Denver to name a few—and we are pursuing the right opportunities at the right time. Given the fact that it’s more challenging to secure a new project today, we are deploying internal resources and collaborating with external partners to facilitate this strategy.
Tell us more about the challenges you’ve had to face in the past 12 months and how you’ve been addressing them.
Oates: There have been several challenges in the last year, most presenting a great opportunity for a multi-faceted organization like RangeWater to thrive. One challenge we, unfortunately, cannot control is cap rate expansion. The exit price of assets has fallen dramatically which makes it difficult to underwrite new rental housing projects. We have not seen costs decline yet but believe they will flatten this year and find a constant in comparison to the rapid cost increases we’ve seen over the last 24 months.
Last year, you marked the launch of your in-house construction division by breaking ground on BTR and multifamily projects in Georgia. How are you making sure that your developments remain cost-effective and efficient, particularly as debt volatility continues to limit developers’ access to capital?
Oates: Ensuring our projects remain cost-effective and efficient is exactly why we established our in-house construction team. We spend a lot of time and effort collaborating on the front end of deals with both our development and construction leads to streamline efforts and work together toward closing. We believe this provides RangeWater a unique advantage in making smart, strategic decisions based on shared knowledge and area expertise. We want to control our own destiny as much as possible.
Can you share a few details about some of your most notable recent deals in the BTR space?
Oates: As one of the most active companies in the BTR space today, RangeWater manages neighborhoods in 85 cities across 13 states for more than 30 third-party clients, as well as our owned assets under the Storia platform.
Over the last 12 months, we’ve broken ground on six new Storia neighborhoods totaling 1,007 homes, increasing our owned BTR portfolio by 228 percent… Two Storia neighborhoods in our development pipeline to note include The Mabry in Lawrenceville, Ga., and The Palo in Fort Worth, Texas. Both feature single-family homes alongside a traditional multifamily component in a unique hybrid approach. We believe finding more opportunities like these benefit our residents to offer more rental housing product types in growing submarkets.
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Please expand on your efforts to diversify your portfolio. What sets your projects apart from your competition?
Oates: With more than $1 billion in our development pipeline, RangeWater’s success is inspired by our vision to create places and experiences that redefine community. Our expertise in community programming and design, lease-up and operations and capital that we bring to homebuilders looking to diversify into the BTR space distinguishes us from other key players in the industry.
The opportunity to diversify our product types has directly influenced our growing BTR portfolio under the Storia brand, and new Olea developments, our age-targeted, 55 and older multifamily communities.
Our Storia footprint has rapidly expanded into our most dynamic target Sun Belt and Mountain West markets, including Annalise in Bradenton, Fla., The Palo in Fort Worth, Caliza at the Loop in San Antonio, Lupine and The Armory serving Denver and Boulder, Colo., Bellerose at Bees Ferry in Charleston, S.C., Beacon Lake Lanier in Buford, Ga., and in the Atlanta metro area, The Mabry in Lawrenceville and Maverick on the Atlanta BeltLine.
Our Olea age-targeted developments are purposefully designed for empty nesters looking to lead an active, social lifestyle in a multifamily environment. On the heels of opening our first two Olea properties in Florida in 2020, we have since announced Olea Beach Haven, a 175-unit, age-restricted community, and Olea eTown, 192 age-targeted apartment homes, both in Jacksonville and slated to open in late 2023.
What are your expectations for the multifamily sector in general and the BTR sector in particular?
Oates: While demand for rental housing should remain robust in the medium to long term, our industry is facing significant headwinds including rising interest rates, inflated construction costs and a slowing economy. For all these reasons, I anticipate 2023 to be a challenging year, but expect improvements by year-end to drive more opportunities in 2024 and beyond.
We love the challenge that presents us as we’re uniquely equipped to deliver given our breadth of submarket expertise and entrepreneurial spirit. RangeWater has never been focused on getting bigger, but rather on getting better. When we focus on improving processes, invest in innovation and motivate our team members to perform at a level of excellence, growth is a byproduct.
