TheMReport

12 | TH E M R EP O RT TAKE 5 The Big Picture Dennis Cisterna spoke to MReport on how larger factors are impacting the single-family rental (SFR) investment market and what investors looking at entering this market segment should be aware of. D ennis Cisterna is the Founder and CEO of Guardian Residential, a private investment firm focused on the single-family investment sector. He has held a wide variety of management positions within the real estate investment and develop- ment sectors, including key roles at firms such as Cerberus Capital Management, Lennar, and Toll Brothers. Throughout his career, he has completed more than $3 billion worth of real estate transactions across the U.S. and Europe. M // What are your key takeaways on the SFR investment market? CISTERNA // The single-family rental investment sector has continued to mature and inves- tors are now forced to be more creative for solid risk-adjusted returns, whether that is build- to-rent, sourcing better financing options, doing deeper renova- tions, or exploring new markets. Opportunistic investments such as investing in foreclosed or heavily distressed properties are declining as a majority of that inventory has burned off and we're now in a much more stable investing environment. The smart investors are the ones who are looking at how they can either find or create value through new channels. M // What trends do you see for SFR investments in 2019? CISTERNA // One of the big opportunities that I see (and Guardian's primary focus) is the growing trend of build-to-rent investments as we look for high-quality assets that produce attractive yields. New construc- tion as rentals works well in many markets, especially with homes in the $150,000 to $250,000 price range. Build-to-rent has the capacity to expand well beyond the current footprint. It's a win- win for both the builder and the investor because the builder is selling additional inventory and/ or they're typically sell- ing it faster, and for the investor, it's obviously a pipeline to a product they didn't have. M // Do you see the inventory crunch impacting this market segment? CISTERNA // To understand the inventory crunch, you need to first see where supply comes from—it's either new construction where we are building homes today at the same rate we did in 1961 even though there are 150 million more people in the U.S. or you look at existing homes, where people are staying in their houses longer than they have historically. Both of these factors are reducing the amount of available inventory. Lastly, you can consider the distressed-prop- erty market, which has essentially dried up. Most of the distressed assets that are coming through the pipeline are those with a prereces- sion vintage. If you look at the overall credit risk right now of both the borrower and the type of loan products, we're originating conservative loans to overqualified borrowers, reducing the risk of future defaults and thus, lessen- ing potential distressed inventory, so it's an extremely tight market. Investors have to work a little bit harder for a good opportunity. M // What would be your advice to investors looking to enter the SFR market? CISTERNA // Always know why you invest and where you invest. Many people—I like to call it the HGTV trend—get brought in by the allure of how easy it is to flip a property or find an investment property and become a landlord. But in reality, this is hard work. Any investor needs to conduct diligence in terms of the market they're in, understand the asset's performance, and execute the strategy to accomplish what they want with that property. People don't think enough about their long-term goals— what they actually want out of a property several years down the line. Another simple piece of advice would be to set aside capital for reserves because bad things occasionally happen, and if you're one of those investors who take every penny off the table, you're left without cash to carry out any type of deferred mainte- nance or capital expenditure. At this stage, such investors can run the risk of moving into slumlord territory and find that the quality of that property goes down, rents decline, and put the investor on the way to distress and default. "One of the big opportunities that I see is the growing trend of build-to-rent investments as we look for high-quality assets that produce attractive yields. New construction as rentals works well in many markets, especially with homes in the $150,000 to $250,000 price range." — Dennis Cisterna, Founder and CEO of Guardian Residential,

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