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 52,400 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 $2.5 million in annual revenue.

    • The residential lessor industry consists of about 52,400 firms that employ 362,100 workers and generate over $134 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

                              Mar 21, 2024 - Multifamily Starts to Drop in 2024
                              • US multifamily construction starts are expected to slow further in 2024 after mounting weakness in 2023, according to the National Association of Home Builders (NAHB). In 2023, multifamily starts fell 14% to 472,000 units. Multifamily starts are forecast to drop 20% in 2024 to 379,000. About 1 million multifamily units are currently under construction, the most since 1973. High levels of fresh inventory coming online will hinder new apartment building activity. A tight lending environment and high borrowing costs also challenge multifamily projects. The NAHB expects rent growth to slow as more new multifamily units come online.
                              • To cope with housing shortages and a lack of affordability, many municipalities are changing their zoning rules to encourage more housing development, according to NPR. In some cities, zoning rules have become rigid and outdated, making building new housing stock difficult and expensive. Increasingly, cities are changing their rules to allow more multifamily developments, including townhomes and apartments, and permitting accessory dwelling units (ADUs), which add a secondary structure on one lot. Some cities have also reduced lot-size requirements, encouraging greater density and the number of available housing units.
                              • Multifamily developers’ confidence remained in negative territory in the fourth quarter of 2023, according to the National Association of Home Builders’ (NAHB) latest Multifamily Market Survey (MMS). The Multifamily Production Index (MPI) rose three points in Q4 to 41 compared to the third quarter of 2023. The Multifamily Occupancy Index decreased by five points to 77 over the same period. An MPI or MOI reading of 50 or more indicates that multifamily production or occupancy, respectively, is growing. The NAHB expects a significant pullback in new multifamily development in 2024 amid stringent lending standards, high costs, and a coming glut of new inventory.
                              • Apartment buildings are getting taller amid sustained demand for rentals, scarcity of land, and some cities’ willingness to change zoning rules to attract development, according to The Wall Street Journal. Between 2021 and 2023, US cities added more than 2,900 buildings with more than 200 units, a 17% increase of the number built between 2018 and 2020, according to property data firm Yardi. High interest rates and single-family home prices continue to prop up demand for rentals, even among those with relatively high incomes. Some cities are easing some zoning rules, such as minimums for parking. The economics of multifamily development have also changed. Higher construction costs mean buildings need to have more units to be profitable.
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