Measured by big, bold plans, no real estate firm matches the epic ambitions of Amherst Holdings. The under-the-radar firm is aiming to to build one of the world’s biggest residential real estate empires by scooping up and renting suburban homes. Amherst is on the move: On February 18, it announced a major deal to acquire Front Yard Residential for $2.3 billion, including debt. In a single stroke, that purchase lifts Amherst into the top ranks of the big corporate owners that have emerged since the financial crisis. Adding Front Yard’s 14,700 single family rental homes raises Amherst’s portfolio to 36,500, making it by far the biggest privately-held player in the industry, and third largest overall behind Invitation Homes at roughly 80,000 properties, and American Homes 4 Rent at 53,000.
To discuss the deal and the industry’s prospects, I spoke to Amherst CEO and chairman Sean Dobson. Over the past 25 years, Dobson built Amherst from tiny bond house into a diversified owner and manager of rental homes, provider of financing for commercial properties, and fund manager for real estate securities with $20 billion under management.
“We originally sold Front Yard a large portfolio of homes that we’re mainly buying back,” he told me. “We continued to manage 6,000 to 7,000 homes homes that we originally bought, renovated and sold them.” He notes that Amherst has concentrated its purchases in fast-growing markets in the south and southwest, notably Atlanta, Dallas, and Charlotte, as well as in midwestern metros with steady job growth, such as St. Louis and Cincinnati. By acquiring Front Yard, he’s doubling down on those thriving Sunbelt and sturdy Rustbelt metros. “Front Yard has more homes in Chicago, for example,” he says, “but our portfolios mainly overlap” in markets where homes are still relatively cheap, so that after fully renovating properties, Amherst can typically rent them in the $1,400 to $2,000 a month range that’s affordable to middle class families.
Dobson sees single family rentals, offered by big owner-managers, as the asset class of the future for two reasons. First, millions of properties held by the group that long dominated the industry, mom and pop owners, are pouring onto the market. The heirs of the original landlords no longer want to fix leaky roofs, replace old air conditioners, and find new tenants.
“The generation that now owns these homes can invest in an REIT to benefit from the single family home market. They no longer have to own and manage houses themselves,” he says. He reckons that 15 to 16 million homes are in the hands of these small proprietors, mostly in clusters of 50 to 100 properties. As the new generation of owners exits, Amherst plans to be a big buyer, adding new appliances, fresh carpeting, and refurbished siding that can make 1990s vintage dwellings look like new construction.
Second, Dobson is seeing an overwhelming demand for rentals. “We put 2,000 homes a month on the market,” he says, “1,000 from our normal vacancies, and 1,000 from homes we’ve bought and just renovated. For those 2,000 offerings, we’re getting 150,000 in inquiries a month. That’s over 70 for every home that becomes available.” The reason? “People rent rather than buy mainly because of their lack of access to credit,” he says. “So many people can’t qualify for mortgages. For example, our renters are more likely to have student debt than the average renter, and the amount of student debt our renters have is twice the average.”
Dobson points to another trend swelling the ranks of renters. “Many older couples sold their homes and decided to downsize,” he says. Frequently, he adds, they’re folks who move to a new city to be near their children and grandchildren and want the flexibility of renting while keeping the cash from the sale of their homes. “That group now makes up 20% to 30% of our renters,” he observes. Those older couples are flocking to rent houses because the big owners are standardizing the quality of their offerings, whereas a few years ago, the choices were so scruffy they’d chose a garden apartment instead.
So is Dobson sticking to his goal, as expressed to Fortune in my story last year, of eventually owning one million rental homes?
“We’ll get to a million,” he says. “It shocks me the number of renters out there we don’t have homes for.” Amherst is paying $155,000 per unit for Front Yard’s almost 15,000 homes. As landlord of a million homes, Amherst would reign over a kingdom worth something like $155 billion. That would make it one of the biggest consolidators in the annals of real estate, in a neighborhood that ten years ago, few thought could be consolidated. It’s a compelling, some would say over-the-top, vision from a renowned visionary. One of the fun spectacles in the years to come will be Dobson’s quest to make it happen.
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