Arlington, Virginia-based apartment REIT AvalonBay Communities announced in its third-quarter earnings call that it plans to focus more resources on build-to-rent development and acquisitions, formally expanding that side of its business.
“[Build-to-rent] feels like an opportunity for us to take what we do well on the operating side and on the development side and bring it into this, I'll call it, expanded set of opportunities,” AvalonBay President, CEO and Director Benjamin W. Schall said on the call earlier this month.
The company intends to focus on townhomes within the build-to-rent sphere, according to Schall. Most recently, the REIT purchased a rental townhome site in Bee Cave, Texas, just outside of Austin, for $49 million, according to CoStar. Built in 2022, the 126-home property is now known as Avalon Townhomes at Bee Cave.
Build-to-rent townhomes aren’t new for AvalonBay. It has over 2,000 townhome units in its national portfolio, and has also developed two all-townhome communities in New Jersey — Avalon Florham Park, built in Florham Park in 2000, and Avalon Roseland, built in Roseland in 2015.
“Our focus is on increasing the number [of] BTR homes within our existing footprint,” Stew Royer, senior vice president of investments at AvalonBay Communities, told Multifamily Dive. “We’ll continue to serve the residents we already know best, and we have a real competitive advantage with our ability to leverage our existing operational scale within our markets. We expect to see more opportunities in our Texas, North Carolina and Colorado markets.”
Expansion and opportunity
AVB, mainly an apartment developer, intends to begin its build-to-rent push in townhomes — which are closer to its existing BTR property operations. However, the company is open to acquiring single-family detached BTR properties, Schall said on the earnings call.
The REIT aims to acquire purpose-built properties of between 80 and 130 units in markets where AvalonBay already has a multifamily presence and operating power in place, according to Schall. “In places where we can have both apartments and BTR, we feel like there are synergies that can come in and around that mix,” Schall said.
AVB has not yet defined the size of its pipeline, or the target percentage of BTR in its overall portfolio, according to Schall. “But we have dedicated resources,” Schall said, “and it will be an area of incremental emphasis over the next 12 to 18 months.”
Build-to-rent development has accelerated in recent years, with 97,000 new homes built to rent in 2023, up 45% from the previous year, according to data from John Burns Research and Consulting reported by USA Today. Demand is also strong; occupancy for stabilized BTR properties stands at 95.1%, higher than for market-rate apartments, according to Yardi Matrix.
Many of the target renters in the build-to-rent sphere are households priced out of traditional for-sale housing, but who are nonetheless looking for larger spaces, according to Royer.
“You have a structural undersupply of housing that has contributed to rising home prices, which can make homeownership unaffordable for many and increases the appeal of rental homes,” said Royer. “When you try to match these demand drivers to existing supply, you find that there is a real need for professionally managed, purpose-built communities to service these residents — and that's where we see the opportunity.”
