MetLife Secures $390M in Capital Commitments for New Single-Family Rental Fund

MetLife Investment Management (MET) has successfully closed its MetLife Single Family Rental Fund with $390M in capital commitments, reflecting optimism in the uncertain rental market.

Fund focus: The fund, which is MIM’s first closed-end vehicle, will focus on acquiring and developing SFRs across the 75 largest US markets. The fund will emphasize real estate development for value creation, which MIM believes is less influenced by interest rate changes than renter demand dynamics.

Rental market dynamics: Amid inflated single-family housing prices, potential first-time homebuyers are increasingly opting to remain in the rental market. According to PitchBook, residential real estate stands out as a prominent sector among the top anticipated real estate fund closures in 1Q23, with SFRs gaining prevalence alongside multifamily options.

Between the lines: Robert Merck, the global head of real estate and agricultural finance at MetLife Investment Management, expressed strong belief in the sustained demand for single-family rentals. In a statement, he described the fund as a natural extension of MetLife’s experience in other housing segments, where their expertise as a leading institutional investment manager has consistently benefited clients. Merck sees a significant, long-term opportunity to provide renters with access to well-designed, conveniently located units.

➥ THE TAKEAWAY

Big picture: The Single-Family Rental (SFR) market saw a surge in institutional investment, with $50B spent on 80,000 U.S. homes in Q4 2021, marking a 44% increase from the previous year. This growth sparked community concerns over worsening housing issues. However, investment declined to $13B in 2022 from $44B in 2021 due to rising interest rates and economic challenges. Despite some institutions, like Starwood, considering selling their SFR holdings, the market demand remains strong, with a 97% occupancy rate in May. Yet, with over 44,000 new SFR units being built this spring, occupancy might face pressure.

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Construction Starts Post 17% Increase in July According to Dodge Network

In July, construction starts increased 17% to $1.2 trillion, led by a 38% rise in nonbuilding starts, largely due to a major LNG facility in Texas, according to Dodge Construction Network. Meanwhile, residential starts rose 20%, and nonresidential starts fell 6%.

Nonbuilding starts: July saw a 38% hike in nonbuilding construction starts, touching $440 billion. Excluding the massive LNG facility, there would’ve been a decline of 7%. Major projects, including the Rio Grande LNG in Texas, a dock at Pearl Harbor in Hawaii, and the Bellefield Solar farm in California.

Nonresidential starts: In stark contrast, nonresidential building starts declined by 6% to $334 billion. Although commercial starts rose by 11%, office and hotel starts diminished. There was an 11% decrease in institutional starts, while manufacturing saw a significant 39% drop. Overall, for the year so far, nonresidential starts have been 7% below 2022.

Residential building starts: Residential building starts experienced a significant boost in July 2023, with a 20 percent increase to a seasonally adjusted annual rate of $414 billion. Within this category, single-family starts modestly grew by 2 percent, while multifamily starts soared by 62 percent for the month. However, on a year-to-date basis, residential starts were 21 percent lower compared to 2022, and on a rolling 12-month basis, they were 17 percent lower than in 2022.

➥ THE TAKEAWAY

Zoom out: Despite July’s positive figures, Dodge Construction Network’s Chief Economist, Richard Branch, pointed out that the overall momentum in construction starts is stagnating. Factors such as rising interest rates, labor shortages, and escalated material costs are the culprits. The upcoming months may witness a lull in nonresidential projects entering planning, but a silver lining could be the expected surge in infrastructure activities, offering a glimmer of hope for the industry.

📖 Read: “Coliving” landlord Outpost Club is accused of exploiting rent-stabilized apartments in NYC by converting them into high-priced suites in trendy neighborhoods, leading to tenant protests and rent strikes due to cockroach infestations, leaking roofs, and heat outages.

▶️ Watch: On this segment of CNBC’s Squawk Box, RXR Realty CEO Scott Rechler discusses the current state of CRE, including its gradual recovery as companies bring employees back to offices and potential losses for investors due to ongoing changes in the industry.

🎧 Listen: In this week’s episode of The TreppWire Podcast, the team discusses how the Fed could achieve a soft landing in the economy despite expected turbulence, the impact of WeWork’s (WE) news on CRE, suggestions for investment safe havens, and more.

Vornado’s $124M Retail Portfolio Snapped Up by Reuben Brothers

The Reuben brothers, UK-based billionaires, have acquired more of New York’s prime real estate as local owners look to divest their assets.

Deal details: Vornado Realty Trust (VNO) has sold a $124M portfolio of retail properties, including 510 Fifth Avenue, 148-150 Spring Street, 443 Broadway, 692 Broadway, and the Armory Show art fair in New York, to the UK-based Reuben brothers, according to The Real Deal. This acquisition comes as property prices have fallen, making David and Simon Reuben prominent buyers in the market.

Not forced: Vornado Realty Trust, which was reported to be working to stabilize its balance sheet after suspending its dividend, sold this collection of properties as part of its financial strategy. Despite the sale, the company has maintained that it is not under any forced compulsion to sell. During a recent second-quarter earnings call, Vornado’s president, Michael Franco, noted that the retail properties involved in the sale have not been significant contributors to the company’s funds from operations.

➥ THE TAKEAWAY

Bargain hunters: Known for their discretion, the Reuben brothers have proven to be strategic and aggressive players in the U.S. real estate market, particularly since the pandemic began. Their recent acquisition is not an isolated move; they and partner Jeff Sutton also recently sold a retail property on Madison Avenue to billionaire James Dyson for $135 million. A 2021 insider summarized their approach: “We are active when markets are turbulent,” indicating that they maintain liquidity to strategically seize opportunities.

This chart depicts changes in property sector exposure in funds over time, showing the popularity of sectors within actively managed funds.

• In 2010, residential, retail, and self-storage had 100% coverage in the funds, while timber had 18% coverage, and infrastructure was less than 5%.

• By 2019, only industrial had 100% coverage, followed by retail, data centers, health care, and self-storage in 89% of funds.

• In 2023, industrial, data centers, health care, and self-storage remained popular with 86% of funds, followed by healthcare (82%), infrastructure, and self-storage (79%).

• Residential fell short in investment despite having the highest share of assets under management.

• Self-storage’s share is relatively small due to its smaller market cap but has been consistently one of the most popular sectors.

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