Case study: Built-to-rent community development
We were recently tasked with finding potential locations for a build-to-rent single-family rental community. These types of communities are booming around the country in response to strong demand for spacious rental properties. As owner-occupied housing becomes more expensive, they fill a gap in the market and have become hugely popular.
Let’s review some of the steps we took in completing this type of analysis.
Step 1: Identify relevant parcels
We started with millions of potential sites.
The first thing that we did was to identify the land parcels that met basic criteria. Using satellite imagery, we built an algorithm to detect which parcels were already built-up and which were still empty. We even cross-referenced multiple sources, to ensure a greater degree of accuracy.
Step 2: Determine if those parcels are buildable
Based on flood zone information, we calculated whether a sufficient portion of each parcel is buildable. If the proportion is too low, then that potential site may be eliminated. Also, we set upper limits for distance from major roads, cities, and residential areas, as well as minimum distance from industrial areas so that sites immediately bordering them are not considered. Based on county assessor data, we set a ceiling on tax-assessed value to rule out areas that are likely to be uneconomical for single family housing.
To keep things simple, we combined parcels that touched each other (i.e. “contiguous”) and focused on those sets of parcels that were large enough to accommodate a build-to-rent community.
Step 3: Score and rank each site
We pulled in our set of Locate Alpha indicators to score and rank every site. The goal was to find the best combination of factors that led to the highest score. Of course, not every site is going to be perfect, but the goal was to have as many positive factors as possible.
For example, we looked at access to places of employment. Access to a greater number of jobs within a short drive means the rental homes will likely rent out faster. This tends to bias “closer-in” locations. Similarly, access to future jobs matters too, as it shows where the growth will be happening in the next few years.
We also looked at risk factors. For example, which areas are improving or deteriorating? Unless your build-to-rent development is truly huge, the exit value of your development may be negatively affected if the surrounding areas are in long-term decline in terms of income, educational attainment, income, and long-term vacancy.
Step 4: Create location profiles
For the top 25 sites, we produced a full scorecard for each location with “A to F” rankings and color codes.
The result was a table showing the ranking of every site, in an Excel file. We also included a Google Earth KML to make it easy to explore every site.
Making things easier and more strategic
With this, it is much easier to start from the top of the list of candidates and work your way down.
Many of the popular sites will probably have been picked over already and have quirks that prevented them from being developed. Your land broker will know these specifics. But, it is much easier to do that from a list of 100 than a list of 1000s of potential sites. You will know from the start that anything on the list meets your basic criteria, a much faster process than checking those details for each site as they come up.
