Spotted in the press

News
 
March 3, 2023

Lafayette attended the (Information Management Network (IMN) Build-to-Rent, Land & Homebuilding Forum

Nashville – March 3rd, 2023

Christopher Mataja Mataja, COO, Cyrus Shahabi, Chief of Staff, and Diego B. Benetti, Senior Analyst, attended the (Information Management Network (IMN) Build-to-Rent, Land & Homebuilding Forum in Nashville on March 2nd/3rd, an event that brought together homebuilders, developers, investors and other key members of the BFR industry.

We’re seeing somewhat of a western standoff between homebuilders and institutional buyers, waiting to see who will flinch first in the current bid-ask spread duel.

Builders & developers report vertical construction costs have pulled back in the single digits from the 2022 peak (mainly driven by sharp declines in the price of Lumber), but land prices and horizontal development costs remain sticky. Margins seem to have tightened relative to 2021/2022 peaks (30+%), but remain healthy and in line with historical norms (closer to the 15-20% range). A boost in retail sales in January and February relative to the end of 2022 has provided some renewed optimism.

Nonetheless, builders are aware that future interest rate hikes are not off the table, and Sheriff Powell might have a few more tricks up his sleeve… thus further impacting retail demand. In response to these conditions, some builders continue to be 100% focused on their retail channel and not really considering meaningful discounts to current retail prices to work with BFR, while others have taken a more balanced stance, i.e., offering discounts vs. retail prices in exchange for eliminating market risk, by contracting all units in a community, and building long-term relationships with credible BFR Investors.

Investors are mainly constrained by interest rates and are only willing to assume negative leverage up to a certain extent. Some investors guided to a tolerance for ~50 bps of negative leverage, which implies an entry yield on cost in the mid-5s for finished homes. Most investors are not very active in development deals, which we can’t really complain about given it makes our bounty for those deals even more attractive!

At Lafayette RE LLC, while we’re cautious not to jump the gun, we continue to be very excited about the opportunity and remain laser-focused on our mission to provide more housing options to US households in a rental market that continues to be supply constrained. Over the last few months, we have put under contract attractive deals that work for both buyers and sellers, and we are deepening our relationships with homebuilders who share our vision.

Our underwriting team has been busier than ever in terms of deal flow, and we have seen the bid-ask spread narrow over the last six months. So cheers to avoiding the standoff in favor of grabbing drinks at the saloon!

Reach out to one of our investor relations to find out more at ir@lafayette-re.com

 

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