Perfecting the Rental Housing Algorithm

housing, Starwood Waypoint Residential Trust, Oakland, Doug Brien, Starwood Capital Group, REIT, Blackstone, Keefe Bruyette & Woods
Doug Brien
Doug Brien

Oakland-based Starwood Waypoint is among national star players in the emerging single-family home rental market.


By Neil Gonzales

[dropcap]D[/dropcap]oug Brien knows a thing or two about performing at the highest level. He played for the 1994 Super Bowl champion San Francisco 49ers and other teams in the National Football League as a kicker for a dozen years.

That experience in the NFL has translated well to his second career in the equally high-stakes, pressure-filled corporate world.

“I was around great players, coaches and teams,” he said, “and I learned how to pursue excellence. So in business, I had a clear sense of how to bring people together for a common goal and to pursue excellence.”

These days, Brien is the quarterback of a major contender in the real estate arena, serving as CEO of Oakland-based Starwood Waypoint Residential Trust.

[quote]“It’s the best leasing environment I’ve ever seen in terms of single-family rentals.” Doug Brien, co-founder and CEO of Starwood Waypoint[/quote]

Starwood Waypoint has quickly emerged as a key player in the burgeoning single-family home rental market. The real estate investment trust—which acquires, renovates, leases and manages homes—is among just a handful of publicly traded REITs nationwide focused on single-family rentals. But more companies are expected to enter this space as renter demand remains strong, rental rates continue to climb and evolving technology makes it easier to scale business than ever before.

“It’s the best leasing environment I’ve ever seen in terms of single-family rentals,” said Brien, also co-founder of Starwood Waypoint. “The question is if the business can be scalable, and I think we and others are proving that.”

The company formed in early 2014 through a spinoff stock transaction involving Starwood Property Trust, a commercial mortgage REIT managed by Connecticut-based private investment firm Starwood Capital Group. The deal also acquired home-rental pioneer Waypoint Real Estate Group, which Brien co-founded in 2009.

Today, Starwood Waypoint boasts $3 billion in assets and manages 16,000 homes across the country, Brien said.

Its biggest competitors include other public REITs such as Agoura Hills-based American Homes 4 Rent and American Residential Properties in Arizona. Several other major institutional investors, including New York-based asset management and financial services company Blackstone, have poured more than $25 billion into the space since 2012, according to an October industry report by New York-based investment banking firm Keefe, Bruyette & Woods Inc.

In its report, Keefe, Bruyette & Woods singled out Starwood Waypoint and American Homes 4 Rent as “scaled, high-quality operators in the sector [that] will eventually generate attractive levered returns. We believe the major [single-family rental] companies have an opportunity to put forth a rigorous long-term [capital expenditure] framework focused on optimizing return on investment supported by actuarial and insurance company data.”

Among the factors setting Starwood Waypoint apart in the market is its proximity to Silicon Valley. Being close to the world’s tech hub, Brien said, the company is able to hire top talent found aplenty in the region.

Another competitive advantage comes from the company’s cutting-edge technology, he said.

That technology centers around a cloud-based operating platform called Compass, which enables the company to efficiently handle a geographically dispersed portfolio of single-family homes.

This platform also provides real-time access to various aspects in the life cycle of a rental home, from acquiring and renovating to leasing and managing the property, thus helping the company continually make informed decisions about its operations.

Another part of the company’s technology involves an algorithm used for choosing where to invest. The algorithm takes into account a neighborhood’s characteristics such as educational quality and crime. It can also project the investment yield of prospective properties in an area.

The market, however, has its investment challenges. Adam DeSanctis, economic-issues media manager for the Chicago-based trade organization National Association of Realtors, pointed out that home prices continue to skyrocket while the number of distressed properties has declined. Thus, the market has fewer bargains for investors compared to past years.

Still, DeSanctis said, investors are expected to remain active on an “above average” level partly because of the demand coming from young professionals looking to rent as well as those who are still saving up for a home down payment.

According to a 2012 Fannie Mae report, single-family units as a share of the country’s renter-occupied stock grew from 30.8 percent to 33.5 percent from 2005 to 2010—the largest increase among all rental property types.

Moreover, home-rental rates are rising. The national average monthly rent for three-bedroom single-family dwellings reached $1,286 in the first quarter of 2015, a year-over-year increase of 5.4 percent, according to research by home-rental services firms Real Property Management and RentRange.

The market is “still a great opportunity for investor returns,” DeSanctis said.

Plus, it has plenty of growth potential. Of the 15.3 million single-family rentals in the U.S., Brien noted, only about 200,000 homes, or 1.3 percent, are owned by institutional investors such as Starwood Waypoint.

“We think the market is compelling,” Brien said.

Photography by Laura Kudritzki

West Coast Commercial Real Estate News