Canada Pension Plan Investment Board and a real estate partner will spend at least $1-billion to get into single-family home rentals in the United States, a fast-growing segment of the housing market that has been propelled by the sharp rise in prices.
This new venture with Greystar Real Estate Partners LLC is CPPIB’s first investment in house rentals as opposed to apartment building rental units. More than a decade ago, institutional investors scooped up foreclosed homes after the 2007 U.S. housing crisis and created large-scale operations for renting out houses.
The trend has sparked criticism, with owners of such businesses accused of driving up prices by using their huge pools of capital to compete with individuals for houses.
Peter Ballon, CPPIB’s head of global real estate, said his new business model will be different, because CPPIB and its partner will develop and buy homes that are specifically designed for rental rather than properties that families could buy for themselves.
“This is not a series of individual homes around the community,” Mr. Ballon said.
He compared it to apartment buildings, and said CPPIB-Greystone rentals would be a “community” of houses that were built specifically for rental.
CPPIB and South-Carolina headquartered Greystar have teamed up before on rental-housing developments, but those were apartment buildings. CPPIB has traditionally invested in apartments.
The structure of the deal is similar to previous ones in which the pension fund contributes most of the capital. In this situation, CPPIB is providing 95 per cent of the US$840-million ($1.06-billion) for a 95-per-cent equity stake. Greystar will provide the rest, for a 5-per-cent stake.
CPPIB and Greystar plan to construct and acquire houses near major employment centres across the southern states and parts of the West Coast, they said in a news release. They want to include detached and semi-detached houses and townhouses with garages and backyards. Greystar will be the property manager.
Mr. Ballon would not pinpoint exact locations, but said they were looking at places such as Seattle, the Los Angeles region and Phoenix. He would not provide the size of their prospective rental-house communities.
Home prices in North America have been quickly rising since the start of the pandemic, with buyers taking advantage of low mortgage rates to get bigger properties to live in during the health crisis.
From January, 2020, through October of this year, the average selling price of a home in the United States is up 23 per cent to US$372,800, according to data from the National Association of Realtors. In Canada, the average home price is up 42 per cent to $716,585 over the same period, Canadian Real Estate Association data show.
“We are targeting markets where we think there will be high demand,” Mr. Ballon said. “High demand can come from a variety of sources. One of them includes affordability of homeownership. … We believe there is strong demand from renters who are renting by choice, who prefer some of the benefits of rental.”
Commercial real estate has been one of CPPIB’s top-performing asset classes over the longer term, although in the fiscal year ending in March, the real estate division lost a net $2-billion, according to its annual report. CPPIB is one of the world’s largest real estate investors and had $43-billion in office, retail, industrial and residential real estate in the Americas, Britain, Australia, China and India, its most recent financial report said.
CPPIB is the second large Canadian institutional investor to expand into single-family home rentals in the U.S. market. Toronto-based Tricon Residential is already one of the largest operators of single-family home rentals in the United States.
In Canada, rentals of single-family homes are fragmented. Only one institutional investor is attempting to build a large-scale operation: Core Development Group Ltd. is buying houses in mid-sized Canadian cities such as Kingston, St. Catharines, London, Barrie and Hamilton in Ontario.
Mr. Ballon said CPPIB has no current plans for single-family home rentals in Canada.
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