Builders Launch Initiatives to Capitalize on Rental Demand

June 3, 2019

Builders who typically serve the homebuying market are beginning to allocate some of their real estate stock to the rental market, hoping to capitalize on strong rental demand. Toll Brothers is leading the charge, putting $60 million into a build-to-rent venture. The company initially will target Boise, Idaho; Dallas; Denver; Houston; Jacksonville, Fla.; Las Vegas; and Phoenix. “We are investing in the single-family build-to-rent sector,” Toll Brothers CEO Doug Yearly said in a second-quarter earnings call last week. “This is another business we believe has great potential.”

Toll Brothers has partnered with BB Living, an established build-to-rent developer, for its new venture. BB Living will take the lead role in leasing and managing properties, while Toll Brothers will look for land opportunities and help with architecture and construction. The venture will be branded as BB Living, not Toll Brothers.

The locations of the build-to-rent homes will be primarily in master-planned communities with a wide variety of price points, Yearly said. The homes will be near single-family properties and townhomes, he said. “While Toll Brothers has committed a relatively modest $60 million to this partnership, we believe this investment will produce strong returns over time,” Yearly said. “It’s viewed as an ancillary income stream. We see this as more and more renters may prefer to raise a family or live in a single-family home versus an apartment complex or community or building.”

Also in May, Clayton Homes, the nation’s largest builder and distributor of manufactured homes, announced a pilot program for build-for-rent communities.

About 15 million households—or 35% of renting households—rent single-family homes rather than apartments, according to the National Multifamily Housing Council. A quarter of renters lease properties that are newer than 1990 and earn household incomes of $75,000 or more.