Which Comes First, The Asset Class Or Housing Preference?
Will single-family short-term rental empires spring up to meet an unmet consumer housing/hospitality need? Big capital seems to believe it will be so, and targets it as a new asset class.
News of yet another capital blitzkrieg into residential real estate last week suggests that nesting within the asset class of single-family for-rent home portfolios – now fully established from their fledgling post-Great Recession days – another, newer big investment play awaits.
Here's Bloomberg staffer Patrick Clark, reporting on Friday, "Investors Chasing Housing Target Massive Pools of Airbnb Rentals":
Investors hunting for returns in the frenzied U.S. real estate market are tapping a new strategy: building massive portfolios of houses to rent out on Airbnb.
A recent filing reveals that Dublin, Ohio-based ReAlpha is seeking to spend as much as $1.5 billion, including debt, to buy short-term rentals at an unprecedented scale. The money would be enough to purchase roughly 5,000 homes, Chief Executive Officer Giri Devanur said in an interview.
ReAlpha's basic pitch hinges on two pillar assumptions:
- Short-term home rentals are not only here-to-stay, but in an early-adoption-curve trajectory
- Machine-learning data and enabling technology simplifies the portfolio and property management dimensions to nail down a sustainable short-term rental empire model
The questions and challenges that come up as Wall Street – in a fierce and pounding play for yield on capital – pours truckloads of capital into any possible access point into residential real estate. Perhaps, not all of that investment capital will hit paydirt, but it won't be for lack of trying.
At the same time, while conventional housing expertise may have been caught somewhat back on their heels with the sudden, sustaining, and still evolving structural demand – discretionary and for-financial-reasons alike – for single-family-for-rent properties, that same level of skepticism may now shift toward the sustainability of short-term rental single-family property portfolios.
It begs the question. Is the consumer demand pronounced, defining this as an "unmet need" in the nexus of housing and hotel offerings?
Or, rather, is the capability of elegantly and manageably scaling short-term single-family property rentals a force that will create the demand?
Residential real estate's rules say, conventionally, that just because something can be done doesn't mean it should be done, or that it will succeed.
At any rate, the first hurdle for ReAlpha to achieve will be to legitimize, manage, and show profitability for its model to prove it out as a new asset class. Meanwhile, will a new, well-managed network of single-family short-term rentals meet a consumer housing and/or hospitality hole in the donut?