Transcendent Electra has a new offering on CrowdStreet's real estate investment platform for a portfolio of 101 single-family rental properties throughout selective markets in the Sunbelt. These select markets are outpacing the national average in terms of population growth, rental rates and home values. The homes are located in Florida, Georgia, North Carolina, South Carolina, Alabama, Tennessee and Texas.
Each of the Properties is newly built and inclusive of a builder’s warranty. An Affiliate of the Manager has the Properties under contract at an aggregate purchase price of $26,116,515. Inclusive of appliances, the total purchase price is equal to $26,381,314.
Investment terms and targets
- Minimum investment: $25,000
- Target IRR: 17%
- Target average cash yield: 2.6%
- Target equity multiple: 1.6x
- Target investment term: 3 years
It's important to note that the manager anticipates an approximate 36-month hold period for the properties, but may elect to dispose of them sooner or extend the holding period at its discretion if it's determined that returns may be increased by holding longer.
Deal SponsorThe investment is being offered by Transcendent Investment Management, a diversified private equity real estate investment firm and vertically integrated manager that focuses on the acquisition, development, and management of single-family homes and attached townhome rentals. The company has produced an average gross IRR of 27.8% on realized investments.
- Benzinga's Take
Many retail investors have been leary of single-family rental investments the past several months, making the assumption that they would be purchasing at the height of the market. After all, housing bubbles have historically been followed by a crash.
There are a couple of important points of distinction today, though:
1. Regardless of what happens with the housing market over the next several years in terms of home values, rental demand will increase. This is especially true in these Sunbelt markets experiencing rapid population growth. This means high occupancy rates for rental units and stable rent growth.
2. There is less correlation between median sale prices for single-family homes and the value of rental portfolios than most people realize. SFR portfolios are becoming a more common asset class among institutional investors, which is causing valuation metrics to shift and be more in line with multifamily assets. The value of an apartment building isn't based on what each unit could sell for as a condo. Instead, the property is valued based on a capitalization rate (cap rate) of the net operating income. Investors are purchasing the property solely based on the expected rate of return from the cash flow.
While the value of any single property in a SFR portfolio may level out, or even decline, the value of the entire portfolio will depend on the net operating income.
With that said, everything related to the U.S. economy right now is probably as unpredictable as it's ever been. If interest rates rise higher than expected, it could ultimately hurt multifamily and SFR valuations. This is because institutional investors expect to receive a certain spread over the risk-free rate. If bond yields are higher, cap rates will have to increase as well. The only way this happens is by lowering the purchase price. This has historically been the primary driver behind any changes in multifamily valuations. This is likely the reason the deal sponsor has retained the option to extend the target hold period if necessary.
If the end of the three-year target term comes at a time when interest rates are higher than normal, it would make the most sense to continue receiving cash flow from the assets until interest rates level out again.
Any loss of capital on this offering seems unlikely since the properties are being acquired finished from the homebuilders. This eliminates any risks that go along with development projects, such as failing to meet timelines and going over budget.
These are also new construction homes that come with a warranty from the homebuilder. This will greatly reduce any unexpected capital expenses such as replacing a roof or making foundation repairs.
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- Minimum Investment