National Investment Firm Expands Single-Family Rental Footprint in Phoenix

Article originally posted on CoStar on June 16, 2022
TerraLane at Canyon Trails in Goodyear, Arizona, is one of two build-to-rent complexes acquired this month by Inland Real Estate Group. (Tim Nelson/CoStar)
TerraLane at Canyon Trails in Goodyear, Arizona, is one of two build-to-rent complexes acquired this month by Inland Real Estate Group. (Tim Nelson/CoStar)

An affiliate of national investment firm Inland Real Estate Group has bought a pair of detached housing complexes outside Phoenix, which ranks among the top cities for single-family home rental investment in the United States.

Illinois-based Inland Real Estate Acquisitions bought the 263-unit TerraLane at Canyon Trails in Goodyear and the 149-unit TerraLane at South Mountain project southwest of Phoenix from their developer, TerraLane Communities of Scottsdale, for $186 million, or roughly $450,000 per unit, according to the Phoenix office of Northmarq, which brokered the sales for TerraLane.

More and more major investment firms are snapping up single-family real estate and building new units to rent. Housing is in short supply nationwide, and the single-family rental market is booming.

That said, there has been a backlash in some cities, where affordable housing advocates have argued that trend is cutting into the supply of for-sale homes, making homeownership more difficult to achieve.

With the latest purchases, Inland now owns a dozen single-family rental developments totaling about 2,500 houses across greater Phoenix, according to CoStar data. Inland Real Estate also owns shopping centers, apartments, student housing, medical offices, self-storage facilities and net-leased properties across the country.

Two other Chicago-area investment firms, 29th Street Capital and Blue Vista Capital Management, recently bought land in greater Phoenix for planned single-family rental projects.

Rental House Rush

Single-family rentals have been especially popular in the Valley of the Sun in part because of the area’s 10% population growth over the past decade and strong housing demand that has fueled double-digit annual rent growth, with limited single-family construction taking place. Single-family rents rose 19% year over year in Phoenix in December, up from 11% in December 2020, according to CoreLogic’s latest Single-Family Rent Index.

Based on job and population growth and available land for residential development, Phoenix ranked third as an attractive location for single-family home development behind Raleigh, North Carolina, and Tampa, Florida, according to the 2022 “Emerging Trends in Real Estate” report by PwC and the Urban Land Institute.

CrowdStreet, an online commercial real estate investment platform, also ranked Phoenix among the top three cities for single-family rental investments, in a research report released in February called “The Best Places to Invest in 2021.”

Strong demand plus the scarce supply of homes for sale is leading to rising prices for homebuyers, making single-family rentals “housing’s sexiest phenomenon,” according to the report.

The property type, also known as build-to-rent, targets young professionals, couples and families who want the feel of a house without the mortgage and homeowner expenses or permanence that comes with buying a home. Single-family rental demand has soared during the pandemic as more renters have sought larger and more private spaces where they can work from home.

Single-family rentals have higher occupancy rates and rents and lower operating costs than multifamily properties, making them a strong draw for investors, Northmarq’s Trevor Koskovich said in a statement.

“Single-family build-to-rent communities attract longer-term renters who tend to stay put, even with increases in rent, and they typically take better care of their units,” Koskovich said. “That results in fewer turnover costs and maintenance costs for landlords.”

The Canyon Trails and South Mountain properties, which were both built last year, come with pre-installed Wi-Fi routers and fiber-optic internet service in each house. The houses include smart-home technology such as facial recognition entry and a security system controlled with phone apps.

For the Record

Northmarq’s Phoenix-based investment sales team of Trevor Koskovich, Bill Hahn, Jesse Hudson and Ryan Boyle brokered the sale of TerraLane at Canyon Trails and TerraLane at South Mountain.