As many of you know, PPR was founded almost twenty years ago to focus on investing in Non-Performing Loans (NPLs). In fact, our flagship funds are still primarily invested in these assets. That said, as stewards of our investors’ capital, we’re always looking for ways to expand and diversify. Staying true to this philosophy, over the past 5 years we have branched out into investing in multifamily and other commercial real estate investments. This expansion has helped our diversification and risk/return profile and has encouraged us to pursue suitable investment opportunities.
Along those lines, we’re excited to announce that we will be investing in Build-to-Rent (BTR) developments beginning in 2025 to further our efforts to diversify our portfolio of assets while maintaining our ability to pay investors preferred returns. To provide insight as to why we’re investing in BTRs and what our investment strategy is in navigating these ‘new’ developments, we’ll be breaking down our unique approach in the article below.
How Do We Source BTR Deals?
Before diving into how we source deals, it’s important to understand what BTR developments we are targeting. We are focusing on ground-up developments of 50-250 units, with the median across all BTR investments being 100 units. The product that interests us the most is single family detached or attached homes, which are in high demand for renters.
When it comes to finding opportunities, we typically source deals from builders who seek equity partnerships due to the capital-intensive nature of real estate development projects. In order to uncover such opportunities, in addition to using a robust pipeline of vetted proformas to identify suitable projects, we plan on attending industry conferences and networking with peers and partners. When it comes to exiting, we’re confident that we can sell to institutional buyers since they tend to be drawn to the stability and growth of single-family rental demand, thus making them a logical end buyer for BTR investments.
How Do We Determine If a Deal is Good?
There are a few considerations we keep in mind before pursuing any BTR developments. For instance, we like to examine the location demographics of a property to determine if it fits our criteria for a good investment. The demographics that we research include median income, school ratings, and proximity to employment centers. These (and other) factors allow us to learn more about the surrounding area and if a property is in a desirable location for renters.
Besides location demographics, we also analyze macroeconomic conditions and supply and demand trends. We focus on markets with high barriers to homeownership and strong rental demand. Taking these factors into account is crucial for determining if the timing is right for purchasing a new BTR property.
BTRs operate similarly to multifamily properties, so we are able to employ existing multifamily underwriting tools to determine a property’s profitability outlook. Additionally, all acquisitions will be vetted and approved through our investment committee process similar to every other investment opportunity at PPR.
Why is PPR Interested in BTR Now?
As mentioned in a previous article, BTR properties are favorable among both investors and renters. Not only do these rental communities meet market demand, but they also are built specifically with renters in mind. They typically have new appliances, shared high-end amenities, and the luxury of suburban living without HOA fees.
BTRs consist of single-family rentals, meaning that these properties have lower operating costs and turnover rates than multifamily rentals. Moreover, the target demographic, those aged 25-45, tend to prefer the single-family rental style of living since many cannot afford to purchase a home outright due to the rising cost of homes and the increase in mortgage rates.
We are targeting regions with significant population growth and economic stability. We believe that these characteristics are defining factors that the target demographic considers before moving in. Furthermore, we are avoiding markets with restrictive zoning and rent control laws to ensure adequate profitability and better exit opportunities. In return, this will allow us to only add BTRs in prime locations to our portfolio.
The combination of high housing prices and demographic shifts, such as millennials aging into family life, creates a strong demand for rental homes. Together with the housing shortage in the United States, this has created a perfect situation for BTR housing. We have already seen an increase in BTR developments to date in 2025, and we only expect it to continue.
For investors, BTRs offer a favorable risk/reward profile. BTRs are considered lower risk than other real estate investments, and they also offer predictable and consistent returns. With shorter expected investment durations associated with BTRs, we believe these investments are less susceptible to systematic risks.
What is PPR’s Plan for the Execution of BTR Developments?
As mentioned previously, BTRs operate similarly to multifamily assets, so we are able to employ similar execution strategies with BTRs as we do with multifamily assets. With proven expertise in multifamily investments and operational efficiencies, our asset team, in connection with third-party partners, are able to acquire and manage BTR properties with the skill and efficiency necessary to generate and scale profit.
All of our BTR properties will be professionally managed, allowing us to focus on the investment itself and not the day-to-day operations. Additionally, since we are able to oversee the ground-up development, we can ensure all BTR investments are high-quality and built with long-lasting materials. When we’re ready to sell, we will sell stabilized properties to buyers looking for long-term cash flow. These properties tend to generate stable and predictable cash flow, which is one of the reasons why we would buy them, so we’re confident that we can find qualified buyers for every investment.
Like every investment, however, we do want to acknowledge that BTRs do have associated risks to consider. In order to mitigate risk, we partner with experienced developers and use a detailed and proven underwriting process for any proposed BTR investment. We will also maintain insurance policies and contingency plans for the unlikely event of sponsor/builder defaults. In addition to our initial due diligence process, we believe that with this combination of precautions, as well as monitoring regulatory changes and focusing on markets with low policy risk, we will be adequately prepared for any risk that may arise.
Looking Ahead
While NPLs have been the backbone of PPR’s portfolio since inception, we expanded into commercial real estate investments a few years ago to add investment diversification and provide better risk/return characteristics to the portfolio. As part of our ongoing investment philosophy and process, we continue to analyze the market for new promising investments to add to our portfolio. Through these efforts, we determined that BTRs provided characteristics that would add value to the portfolio. With its unique advantages such as increased demand and lower turnover rates, BTR developments are gaining momentum, and we’re excited to take advantage of its unmatched opportunities.
