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Th e M Rep o RT | 17 ExposurE outcome, and therefore they become pessimists and they're rooting against the success of it." New sources of capital have come into the SFR space but have different expectations, which is great for the market because some cities haven't even begun to be tapped yet, accord- ing to Rand. The Northeast, the mid-Atlantic, a lot of California, and the Pacific Northwest are just a few examples, he said. "The reason is the fundamentals that you get in Georgia, or Florida, or the Carolinas, or Texas, appeal to the investors that have been in the first part of this institutional trend," Rand said. "Many in the next wave have different expecta- tions, which means different markets emerge. For example, you can buy a house in the Washington, D.C. suburbs. If you look at all the fundamentals of the D.C. suburbs, there has not even been a whiff of a recession in that market. Unemployment is down to 3 percent, the federal government and all the services are around there. It is the job center of the country. Home price appreciation is at 3 and 4 percent every year going back 20 years. But you can't get any better than a 4 percent yield there, so nobody's buying there. "On one hand, new sources of capital with different expecta- tions means it opens up more geographies because there's a diversity of business plans. More foreign investors are buying $3 million luxury condos for their kids to live in, because they don't have any other way to invest in U.S. housing, so they buy a house or a condo in Manhattan or San Francisco. It's not very smart, but no one's really bridged that gap yet." Single-Family Rental Market Experiences Sustainable Growth A confluence of factors has created the "perfect storm" for sustained growth in the single- family rental market, according to one expert in the Securities Lab of the Inaugural Five Star Institute Single-Family Rental Summit on Monday, October 12, in Las Vegas. Those factors include high- er mortgage rates, tightening credit standards, rising home prices, an increased number of rental options, ever-increasing student loan debt, and the number of household formations to building permits combined with declines in income growth, distressed sales, personal savings rate, and the overall desire to earn a home, said Chris Crippen, managing director for US Residential Asset Fund. "This is all leading to the perfect storm for sustained growth," said Crippen, who has worked as an analyst, asset manager, and executive for Wall Street REITs, the FDIC, and Fannie Mae before founding US Residential Asset Fund in 2010. "At the FDIC in 2007 and 2008, the question was 'How long will REOs last?' Then all the REO agents went into the investment space. How long will that last? Who knows. We're in an artificially suppressed interest rate environment right now. Trends are good. We're in a perfect storm for sustained growth. I could say for the next five years all looks great and we'll check back then. If I had to put a number on it now I'd say we're in the third inning. It's not too late to get in." Crippen gave a presentation in the lab on Areas of Growth in the single-family rental securiti- zation space. The lab also included presentations from Charles Chacko, Founding Member, OS National (host of the lab); Sonny Weng, Lead Analyst, Single-Family Rental Sector, Moody's Investor Service. During an 18-month period from 2009 to 2010 while working at the FDIC, Crippen and his team closed 150 banks int he southeast and closed another 23,000 assets. That, Crippen said, opened the door for institutional investors. "This was the beginning of the single-family rental space," Crippen said. "Prior to that, just the cost for an institution to come in and buy a property at market level and try to cash flow it, it just wasn't happening." "Institutionalization means really intelligent people are coming in here to figure out how they can make as much money as possible." "This is a $23 trillion market that is just now being institu- tionalized," Crippen said. "Institutionalization means really intelligent people are coming in here to figure out how they can make as much money as possible. Typically this market was mom and pop investors—5 to 10 homes. There are about 14 million rentals in the U.S. and about 200,000 are institutionally owned. So there is so much room to grow here." The demand for single-family rental houses has soared, which has caused the boom in the market, Crippen said. "If you look at a multifamily portfolio, they're typically comprised of 1-1s, 2-2s, close to the urban core," Crippen said. "Very few 3-2s. When someone has a kid or has a family and graduates from that and they want to own a home, where do they go? Prior to where we're at now, there was really no place for them." Crippen said the SFR industry is a maturing one where everything consolidates to the cheapest money, and as interest rates start to increase, higher efficiencies will be demanded and created, so there will be even more opportunities and more markets will open up in which renters can participate. "The ways to create efficien- cies are policies and procedures and training, and data reporting is a huge thing when it comes to securitization," Crippen said. "As the efficiencies are created, all the experience they've learned in the last four years it doesn't stay with these institutions. As they get more efficient, it trickles down and teaches other people to be more efficient and make more money in this space." SFR Rehab Cost May Be Lowered By Removing Waste From Process W ith the costs of labor and materials increasing, [T]he SFR industry is a maturing one where everything consolidates to the cheapest money, and as interest rates start to increase, higher efficiencies will be demanded and created, so there will be even more opportunities and more markets will open up in which renters can participate.