Lessors of Residential Buildings

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 54,000 lessors of residential buildings and dwellings in the US lease single-family homes, apartment buildings, and town homes. The industry includes owner-lessors and firms that rent real estate and subsequently sublet property to others.

Vulnerability to Trends in the Housing Market and Economy

The housing market is cyclical, and market conditions affect property income and values and the ability to collect rent.

Capital-Intensity of Operations

The residential owner-lessor business is extremely capital intensive.

Industry size & Structure

The average residential lessor operates out of a single location, employs about 6-7 workers, and generates $2.8 million in annual revenue.

    • The residential lessor industry consists of about 54,000 firms that employ 370,000 workers and generate over $153 billion annually.
    • The industry has a low level of concentration; the top 50 companies account for about 30% of industry revenue.
    • Large firms with residential lessor operations include Essex Property Trust, Avalonbay Communities, Equity Residential, and Mid-America Apartment Communities. Some large firms are vertically integrated and operate as residential real estate developers.
    • Despite the size of the industry, many large firms operate regionally.
                              Industry Forecast
                              Lessors of Residential Buildings Industry Growth
                              Source: Vertical IQ and Inforum

                              Recent Developments

                              Jun 21, 2024 - Multifamily Development Slows
                              • Some multifamily developers are pulling back on project plans amid high interest rates, tighter lending standards, and increased construction costs, according to The Wall Street Journal. In April, multifamily starts dropped to 322,000, marking the weakest April for starts since 2020, according to Yardi Matrix. In 2023, about half a million new apartment units came online, and some industry observers expect a similar influx of apartment supplies in 2024. The surge in new apartment supply may mean having to reduce rent to fill them, which gives developers of new projects pause. Some regional banks have less money to lend as their existing portfolios of commercial real estate loans are marked down.
                              • While high interest rates of around 7% have been a drag on the single-family housing market, they have helped sustain multifamily demand as would-be home buyers stay in their apartments longer, according to a recent report by the National Association of Realtors (NAR). While demand is robust, the multifamily vacancy rate remains at a 10-year high of 7.8%, although many of the vacancies are due to a huge wave of new supply that has yet to be leased. Vacancies are most concentrated in Class A properties, which have a vacancy rate of 10.8% compared to the 5.6% rate for Class C properties. Stronger demand for more affordable apartment options indicates consumers are feeling the pinch of inflation.
                              • While apartment rents have moderated from pandemic-era levels, they are creeping up again in some parts of the country, which could make it harder for the Federal Reserve to reduce interest rates, according to The Wall Street Journal. Nationally, apartment asking rents have been mostly flat over the last year. However, that is primarily due to falling rents in the Sunbelt, where a flood of new supply in recent years has put downward pressure on rent growth. In parts of the Northeast and the Midwest, rents over the last year have risen in some metros – including Milwaukee, Washington DC, and Kansas City – by as much as 3%-4%, according to Apartment List. While housing inflation has remained stubbornly sticky, most industry experts do not expect significant national rent gains this year.
                              • A lack of affordability in the US housing market is prompting a building boom of for-rent homes, according to The Wall Street Journal. Amid high interest rates and home prices, many affluent potential home buyers are priced out of the single-family and townhome markets. In 2023, US builders completed 93,000 for-rent homes - the most ever in a single year and up 39% over 2022, according to John Burns Research and Consulting. There are another 99,000 for-rent homes currently under construction, but the breakneck pace of development is expected to slow as lending standards tighten. However, some industry watchers believe any lull in built-for-rent home demand will be brief as economic conditions make renting a better financial option than buying. As of March 2024, the average monthly mortgage payment was 38% higher than the average monthly apartment rent, according to CBRE.
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