Single-family rentals are big news lately, but this is a trend that has been growing for a while. Since the Great Financial Crisis, companies like Invitation Homes have been building portfolios with thousands of single-family rentals (SFRs). Many single-family and duplex rentals are still owned by individual landlords. HUD estimates that around 22.7 million units in 16.7 million properties are owned by individual investors, and institutional investors only represent around 2% of the total single-family market. However, as companies both public and private continue to make big moves, that could continue to change. One of the newer institutional landlords amassing homes, VInebrook Homes Trust, is said to be the latest large portfolio currently weighing an initial public offering (IPO).
Adding another public REIT to the stable
VineBrook Homes Trust is currently a private REIT (real estate investment trust) managed by NexPoint Real Estate Advisors. NexPoint already has three publicly traded REITs that cover multifamily properties (NexPoint Residential Trust; hospitality properties (NexPoint Hospitality Trust), and commercial mortgages (NexPoint Real Estate Finance).
VineBrook isn't a newcomer to the SFR space. It was formed in 2007 but didn't become a REIT until 2018 when it formed as an Umbrella Partnership Real Estate Investment Trust, or UPREIT. Like some of the other large rental home providers, it has some concentration in the Sun Belt, but it also is building large portfolios in growing Midwestern cities such as Cincinnati, Kansas City, and Columbus. As of March 31, 2021, it had 13,693 homes across 16 states in its portfolio. It took in $30.1 million in revenue for that quarter. The average home was a 1,318-square-foot three-bedroom property, and its highest concentration of homes is in Cincinnati, Dayton, and Columbus. It specifically steers clear of markets where it might face other institutional investors.
Positive signs for VineBrook
Market watchers might be intrigued to know that rockstar investor Cathie Wood is a member of VineBrook's board as well as serving on the board of directors for NexPoint Residential Trust and NexPoint Real Estate Finance.
While it may seem like the institutional SFR business is huge, it's really only just beginning. Consider that 55% of multifamily properties are owned by institutional investors. Even a modest uptick in institutional portfolios has the potential to reshape markets all around the country. Add to that the fact that many individual landlords may be reconsidering their holdings in the wake of the pandemic and the cavalcade of eviction moratoriums that followed.
The fact that VineBrook steers clear of some of the more popular and expensive markets is another important point to consider. Tricon Residential plans to buy 18,000 SFRs within the next few years, concentrating on Sun Belt locations, and Invitation Homes expects to spend $1 billion on expanding its portfolio this year. It's always a risk when a company has an investment thesis that differs from where much of the money is headed, but VineBrook's focus on affordable Midwestern homes for rent could pay off in the long run.
There's no guarantee that VineBrook will go public this year or even next year. However, given the overall scramble for SFRs, the limited number of publicly traded SFR REITs to choose from, and the strong demand for the product, this is worth keeping an eye on.