REAL ESTATE NEWS

Affordability is the topic du jour when it comes to build-to-rent and single-family rental homes in California.

“As supply burns off, concessions go away, and rents go up; It's all about location,” George Maravilla, managing director at JLL, focusing on BTR debt and equity, told GlobeSt.com.

For buyers, decisions are made based on the current, but fluctuating, 30-year mortgage rates.

“They need to see what it would cost to buy versus rent versus their income,” Maravilla said.

Supply again comes into play. Post-COVID, in 2021, rents shot up. This led to a lot of supply.

But currently, Northern California, for example, has about 1.2% of its existing inventory delivered this year, while Southern California has delivered 1.1%. The Inland Empire has seen more than 2.8% of its inventory hit the market, the highest in the state. In contrast, San Francisco (city only) has seen zero completions in the past two years and has nothing of note in its pipeline, according to a JLL report.

“Starts have slowed in recent years, but now that’s improving a bit,” Maravilla said. “

A recent project has 700 units under construction in Mountain View, Calif., making it the largest in the state, he said.

In California, BTR developers are looking for sites.

“The land prices for infill are too expensive,” Maravilla said. “Especially given that this is a lower-density product.”

Developers have their eyes on the more affordable Inland Empire and Palm Desert areas and their outlying areas.

“Projects in California don't always pencil out,” Maravilla said.

“You want to have some barriers to entry. Limitations are good. You don’t want anyone to be able to build anything they want, wherever they want. You have to find a balance between building and the right price."

“California has a low supply right now, so homes are leasing faster without commissions.”

Maravilla added that some developers are avoiding California because the approval process takes too long. Others are finding that obtaining Institutional equity has been challenging.

“These investors’ return expectations are higher than what BTR will rent for,” Maravilla explained. “But the focus is changing. Things are thawing out a little bit.”

Meanwhile, he said developers are raising cash through registered investors.

“This is still a heavy load,” he said. “It's expensive money, that’s for sure.”

Source: GlobeSt/ALM