Quarterra, the multifamily arm of homebuilder Lennar, and Invitation Homes, one of the nation's largest owners of build-to-rent properties, launched a joint venture that brings the two companies into an equity and operating partnership.
For Dallas-based Invitation Homes, the agreement adds thousands of residences to its third-party management business in a move executives hope will improve margins and refine operations within its existing portfolio of 85,000 rental homes.
The deal comes as Quarterra, headquartered in Charlotte, North Carolina, has posted tens of millions in losses over the past year though build-to-rent is becoming an increasingly attractive option for investors and multifamily operators. Higher interest rates and a severe shortage in the supply of single-family houses have pushed mortgage costs to record levels while rents for traditional apartments have flattened in many markets.
“The shared build-to-rent vision between Lennar and Invitation Homes creates opportunities that make the single-family lifestyle in a quality-built home more attainable,” Stuart Millar, the executive chairman and co-chief executive of Lennar, said in a statement.
Build-to-rent projects are made up of single-family houses for the purpose of leasing each house to a sole tenant. The sector remains a small portion of the U.S. single-family home market, but its numbers are growing. Data from the National Rental Home Council shows build-to-rent completions have ballooned 270% since 2019. In 2023, completions increased 62% from the year prior to nearly 25,000.
New Agreement
Under terms of the deal, Invitation Homes will acquire a minority stake in Upward America, a single-family rental business founded by Lennar in 2021 with the stated aim of purchasing more than $4 billion in assets. Invitation Homes will also provide property management services for Upward America’s 4,400 houses that are located primarily in Florida, Texas, and the Carolinas.
Invitation Homes on the company's first-quarter earnings call Wednesday said it has invested $37.5 million in Upward America, representing a 7.2% ownership interest, in a portfolio of about 3,700 single-family rentals. An additional 700 homes will be added to the newly built portfolio in the third quarter, the company said. The portfolio of 4,400 homes in the venture is expected to expand Invitation Homes' total owned and managed portfolio to 110,000 rental houses, CEO Dallas Tanner told investors.
Included in the joint venture is Centerbridge Partners, a diversified private investment management firm with roughly $38 billion under management. The company was an original partner in Upward America and led an initial $1.25 billion capitalization.
“Invitation Homes’ investment in the joint venture validates our thesis around the attractiveness of high-quality, new homes concentrated in some of the fastest-growing markets in the country,” Ally Heyburn, managing director at Centerbridge, said in the statement.
The partnership with Invitation Homes comes at a crucial time for Quarterra. As recently as December, Bloomberg News reported the company was putting a large portion of its portfolio on the market for $4.5 billion. The speculation followed losses in Lennar’s multifamily division that reached $50 million over that year, with $22 million coming in the first quarter as oversupply and slower-than-usual rent growth dragged down earnings. Losses in the first quarter of 2024 slowed, but still reached $16 million.
In April, Doug Bober, a Quarterra president, told CoStar News “there are no set dates for Quarterra to spin from Lennar at this time.”
Lennar had talked about potentially divesting Quarterra previously at the beginning of the current downturn in 2022 with executives citing market conditions, including rising interest rates, slowing rent growth, and persistent supply chain issues that were “not favorable” to a spinoff.
Quarterra did not immediately return a request to comment from CoStar News on the joint venture.
Sector Resurgence
Blackstone, the private equity firm that largely established the build-to-rent sector in the wake of the Great Recession, kicked off the most recent push toward the asset in January when it announced an agreement to purchase Tricon Residential for $3.5 billion. The Toronto-based multifamily operator had 38,000 single-family rentals in the United States at the time. Blackstone also said it intended to invest another $1 billion in Tricon’s existing development pipeline.
The move marked a return to build-to-rent for Blackstone, after the firm cashed out its remaining shares of Invitation Homes in 2019 for more than $1.7 billion.
Invitation Homes has said it plans to increase its 80,000-unit portfolio of single-family homes with $1 billion earmarked for new home purchases this year after spending the same amount on 3,200 homes in 2023.
An agreement to manage a "14,000-home portfolio with Starwood," was just the beginning of the company's much larger strategy to grow its third-party management business, Tanner said on the earnings call, adding the Quarterra-Centerbridge venture and a recent Nuveen deal helps it bulk up its portfolio.
"This is only the beginning of our journey into the management business," Tanner said.
Invitation Homes is also actively adding to its stable of builders after teaming up with Lennar and PulteGroup in recent years. The company has also recently added D.R. Horton, Meritage Homes, and Dream Finders Homes to its homebuilder partners.
Between the three new builders, Invitation Homes has contracted to buy about 500 new houses in Charlotte, North Carolina; Jacksonville, Florida; and Nashville, Tennessee.
The nation's persistent housing shortage has left Invitation Homes and others in the industry seeking a way to build more supply and offer a variety of housing options to would-be residents, Tanner said. Some researchers estimate there's a shortage of nearly 4 million houses in the United States, according to a study by Freddie Mac. That lack of supply, coupled with elevated mortgage rates and some builders hamstrung by financing, adds to the already existing problem, Tanner said.