Private equity’s push into single-family housing this year strained a market already strapped for supply as mom-and-pop bidders found themselves up against institutions intent on buying to flip or rent.
Investment firm Fundrise found opportunity in that bottleneck. Last week, the startup secured a $300 million credit facility from Goldman Sachs to finance almost half-a-billion dollars in new home construction to bulk up supply in the Sun Belt.
But the firm’s new developments will be built-to-rent houses owned by their investors. While the properties will broaden the supply of rental options, they’ll do nothing to expand opportunities for home ownership.
Fundrise argues that its approach, unlike other institutional investors, doesn’t crowd out buyers. But in December, the startup outbid larger firms to snap up a new rental development in Conroe, Texas, for $1 billion in December. The Wall Street Journal reported that D.R. Horton, in taking the deal, earned nearly twice what middle-class buyers could have brought in.
Still, a greater supply of affordable rental housing is needed, said Fundrise CEO Ben Miller.
“It would be nice if you had a quarter million dollars to put down on a deposit, but not everybody has that,” said Miller. “You can rent a house for a thousand dollars a month and that’s extremely affordable.”
The venture also widens Fundrise’s investment offerings. Investors can buy into the firm’s diversified interval fund, which encompasses single-family, multi-family and industrial buildings, or invest in a single-family specific eREIT — the non-traded real estate investment trust Fundrise specializes in.
Ths startup attracts non-accredited investors — regular folks with at least $500 to invest. Miller thinks the single-family offerings will be a hit with Fundrise’s 150,000 users. It’s an investment that’s easy to understand.
“It’s not as intuitive to understand why a commercial real estate deal might be good or not so good,” said Miller. “But everybody understands why someone would want to live in a house.”
The executive is betting the boom in remote work, coupled with the cultural shift away from cities, means the demand for rentals has a 10-year trajectory.
“If you’re in your 30s, you have a kid and you can work out of your house rather than a 800-square-foot apartment, you will,” he said.