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Single-family rentals (SFR) are having a moment, with significant momentum in rent levels and values. Build to rent is the gateway drug to SFR, with new groups entering the sector left and right. Aggressive assumptions and favorable deal terms are necessary to execute a portfolio transaction. Considering this, how do investors get in on the action in such a competitive market? Roofstock's VP of Business Development, Clayton Wyatt has answers for you in this episode. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The remote real estate investor podcast is for informational purposes only and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: Hey, everyone, welcome to another episode of remote real estate investor. I'm Michael Albaum, and today I'm joined by Roofstock, VP of Business Development, Clayton Wyatt. And Clayton is going to be talking to us today about some of the things investors need to be aware of, and things they can do to win portfolio deals. Alright, let's get into it. Clayton Wyatt, thank you so much for taking the time to join us today. Really appreciate it. Clayton: Yeah, happy to be here. Michael: And so I would love if you could give our listeners a little bit of background on who you are as an individual and what your role is at Roofstock specifically. Clayton: Yeah, who am I as an individual, I don't know if I want to bore the audience. But I mean, I'll give a little bit of background, you know, came from real estate, private equity and investment banking, you know, background, you know, Rich and I both spent a lot of time at Jeffrey's covering the single family rental space, including, you know, waypoint which obviously Gary was the the CEO of and, you know, all the way, way back to when waypoint was ramping up to go public. And we ended up merging them into, you know, a spinoff from Starwood into a public reit, and, you know, covered them as a public company. So when, you know, rich, and Gary and Gregor had co founded Roofstock, I stayed behind and had done some, some read coverage, mostly in the residential space, but also started a cover, you know, some prop tech companies, as we started to see more of these technology companies getting into the real estate space. And so, you know, groups that were like an Opendoor, or an Offerpad, or, you know, Point or Unison, or some of these mortgage companies really starting to see a lot, a lot more of those, those groups come into the space, because residential is a massive asset class. Right. And so similar to, you know, Roofstock there was there was a big Tam available for for groups to cover. So it's been a little bit of time there. And then, you know, finally got an opportunity to come over to Roofstock, about three years ago, and primarily spending, you know, my time in the in the business development team, which, you know, obviously, we handle the portfolio transactions, but also a lot of the, the JVs and interesting relationships that we've got going on there, including, you know, the recent announcement we had with JLL, that made an investment into rootstock, and then obviously, we set up a joint venture with them and with the acquisition of stessa. So I would say, majority of time spent there, but also, you know, at a at a corporate level, you know, any any capital markets activities, so rather that's, you know, US structuring, you know, debt or equity, but also on the investment services side, where we have clients coming in that are looking for advice on putting credit facilities in place or debt products, spending a little time there with with the broader team. Michael: Right on. Clayton: Does that work for an overview? Michael: Yeah, that was great. That was great. And so for those of our listeners that might not be familiar with the private equities market, what is covering something mean, you talk about covering a read or covering SFR? as an asset class? Clayton: Yeah, So just as an investment, you know, banker, you're, you're really a, it's a client, you know, driven business. And so covering a company is really, you know, you're the point of contact for that company for all the services that, you know, the bank can offer to them. So rather, it's advisory on selling a large portfolio, or accessing the public markets for either equity or debt. You know, we're a coverage officer in the sense that, you know, if, if you want to do any of those services, we sort of help you set up any of those products or access those markets. Michael: Perfect. Okay. Thanks for clarifying. So today, what I really wanted to chat with you about is what you're seeing in the marketplace, in terms of how to win portfolio deals, both on the institution side of things, and then also for your individual or retail investor. What are some things that have changed in the in the landscape and what are some things that folks are doing to win portfolio deals? Clayton: Yeah, so I mean, a couple of things that I would say just stepping back First, you have to recognize the size of this market. Right. And single family rental is not a new industry, it's not a new marketplace, but it's been new to institutions, just over even the last decade. And SFR, we've been saying this for a while, but SFR is definitely having a moment. And the market is very hot, you're just seeing record amounts of new capital, particularly at an institutional level flowing into the space. And if you compare that to, you know, other real estate asset classes, there's there's a massive gap between the the percentage of ownership at an institutional level versus the smaller retail, you know, investors one off investor. So within let's just look at multifamily residential as a comparison, I think the the quote unquote, institutional ownership in that space is 30 35%. And it kind of depends on how you classify institutional investors could be a little bit higher, within SFR, it's still two or 3%. So you've got this, 10x, opportunity or more right, to to capture more of that class from an institutional level. And once use in any of these real estate classes, once you've seen institutional money come into a space, it's not like it retracts and then exits the space, right? It just continues to be more and more institutional, so that that's a huge opportunity, I think from a, you know, from a retail ownership or a smaller, you know, investor ownership, because that means that your portfolio is likely going to be worth more money, you know, tomorrow than it is today, because of this cheaper cost of capital, you know, coming into the market. And so it really has been, you know, from one of the trends, I guess, it's been a supply problem, not a not a demand problem, right? So is with an ever increasing amount of money coming into a, you know, sort of a fixed asset, you know, base, you're going to have more competition at every turn. Yeah. And so I think that's one of the major trends that we're just we're watching closely. And as we take out portfolios for sale, we're just seeing more and more investors interested and more and more, quote, unquote, real buyer showing up to bid on processes. And I think people are looking for ways to differentiate themselves, and for ways to, you know, get get proprietary access to different deal flow channels. I think from a, you know, how do you, how do you win more deals in the market? I think it really is, goes into that differentiator, right. So you can, you know, in any in any process, you could pay more money for a deal, right, you can be a more certain buyer. I mean, ultimately, if you pay more money for a deal, you're gonna win that deal, right? If you're the if you're the, it's kind of, you know, simple to say, but if you pay the most money, in any process, you're gonna win the deal. But I do think that when you're a seller, getting that, that certainty of close is important, as well. And so when we always tell our sellers, and we tell the buyers that are bidding, it's really three things, it's, you know, how do I win a deal, it's price, terms of the contract, and then certainty of close, right, so you can win, win, win or lose a deal on those three deal points. And I think that applies to, you know, anywhere from the, you know, a 10,000 home portfolio deal all the way down to a 10 home, you know, deal or even to a, you know, a single, a single home. So, from a perspective of what are we seeing, and what does it take to, to win deals? It's really those three things, Michael: Yeah I'm curious to just get your personal insights and opinion as to why do you think SFR has become this explosion? airy, if that's a word asset class, into the institutional world, and the multifamily commercial industrial has always kind of been there. But why now, all of a sudden, are we seeing institutions so interested in the single family space? Clayton: Yeah, I mean, I don't know if that's a word, but we could we could invent it here. And we could we could try to get it into the dictionary, Michael: We'll go with it. Clayton: Well, I think it's, it's it's a couple of things. This has always been an asset class. And it's always been a really important way that investors have been able to to grow wealth over time. It's just now becoming more relevant or, you know, apparent institutions. Because, I would say in large part technology, and companies like a Roofstock that can create a marketplace can eliminate some of the friction Out of the transaction or out of the management and the ownership of these assets. If you, you know, back up to, let's say, you know, 2011-12-13, when companies were, you know, institutions were buying these assets, and then getting ready to take them out as public companies, there were a lot of investors that really do this as a trade for institutions and didn't believe that you could manage, you know, a scattered site portfolio of properties, at the same efficiency, or at the same scale as multifamily properties, which, you know, could be units all in one building vertically, right? Technology, change that, because you could now, and it's been proven out now, like, I don't think that there's any question anymore of, can you can you manage a, you know, 80,000 unit portfolio of single family rental, at the same level as you can manage 80,000 units of multifamily. And so I think you have have that, let me, let me put a pin in that for a second. But the other piece of it is, we've just been through a crazy pandemic, where on its face, I think everybody would have thought real estate, you're going to see another massive dip in real estate values, and what actually happened over the last, you know, 12-18 months, values went up, right, and it's, it's a supply problem, we over the last, you know, decade, we have under built in terms of supply. And so why you see a lot of these home builders rushing to build even more, even if you look back at the last decade, we there's, there's so many more homes that need to be built to even catch up with that normal, you know, curve in terms of the amount of product that that we need, as a as a country. So I think that's, that's magnifying the problem. But in terms of this is an asset class, the reason it's so interesting to institutions is because you can manage it at scale, the technology's there to do it. And it's, it's a hedge against, you know, downturns people, the value of home has become so much more important even during this pandemic. And I think it Listen, it was apparent in the last downturn, that the rental income is very durable, even during a real estate depression when prices go down. And so, you know, during this, this pandemic, it was actually it was a huge winner, because not only were the was the the rental income durable, but prices were actually going up, right during a during a downturn. And so, I think those those things have kind of made this an important asset class for investors. And, you know, you also see this, you know, iterating, in, in, in different forms, right, like the build to rent, you know, asset classes has become much more, it's kind of like the the in vouge thing to do right now. Right, is to own build around to go accumulate assets. Yeah, from my perspective. And why is that? Like, that's, that's not a new concept. I mean, if you look at Europe, they've been doing builddirect for decades, right? It's, it's just in the US, where I've been calling it the gateway drug to scattered site, single family rental, because if you're a, you're a residential multifamily investor, you're used to having 200 units in one building. And so you weren't quite as comfortable saying, I'm going to go buy 200 units in Phoenix in a scattered site, where I have to manage all these these assets in different places across the MSA. But if I can buy 200 units that are contiguous, and it's a build to rent community, it's an easy way for you to start getting into that, that single family rental portfolio. And I think that, you know, that's important because it gives investors a comfort level that you can you can own and operate these similar to, you know, other residential asset classes. And so I think in the future, it's not just going to be Is it a single family rental, you know, residential portfolio, or is it a multifamily residential portfolio, it's just residential. And rather, it's, it's it's multifamily or single family, you're owning a house for somebody to rent, right. And that's an that's a very important thing. Because where you wake up and how you feel about your home, like, I think it permeates so many other areas of your life. And, you know, the best thing you can do is provide a roof over somebody's head that, you know, gives them a safe and happy like place to live. And so that's never going away, regardless of if it's multifamily single family or, you know, we figure out ways for people live in, you know, co living situations or what have you. So I think it's an asset class. That's, that's been important for years and years and years, but it's just been institutionalized and technology has helped accelerate You know, our ability to do that efficiently? Michael: I think that makes a lot of sense. Makes a lot of sense. Alright, so let's jump into talking about a little bit more in depth some of the three points that you brought up in terms of what it's taking to win a portfolio. So, so price terms, and then certainty of close. So let's start with price. Where are you seeing these portfolios go with regards to list price, versus what they're actually being purchased for? Clayton: Yeah, that's a hard one. Because, you know, list price is difficult. And I think in some scenarios, having a list price could even hurt you particularly in, in, you know, in an appreciating market, right. So if yours, you're setting a list price, you might be setting that list price too low, Michael: Someone could be willing to pay more, Clayton: In some cases, it's Yeah, and and on an individual asset basis, I think it's a little bit easier to set a list price, because you've got, you know, sort of some insight into what that looks like. But at a portfolio…
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