Short-Term Rentals Comparable to Single-Family Rental Market a Decade Ago
“In 2012, Jonathan Gray, the head of real estate at Blackstone, thought he could ‘professionalize’ the fragmented single-family rental market through scale and centralized operations. Over the next 5-years, Blackstone blazed a trail for other institutional investors to enter the space, reaping $7bn in profits from their investment in Invitation Homes, or more than twice what they invested. ”
We often refer to short-term rentals as a nascent or emerging asset class. History shows us some of the best times to generate outsized investment returns are before the big firms pile in, which is one of the reasons we are so bullish on the opportunity set. So today, we want to provide an example of an emerging asset class that has matured over the past decade and share parallels we see to the short-term rental industry.
Single-family rental trajectory:
- Before 2010, institutional landlords didn’t exist in the single-family-rental market. The market was fragmented: there were regional players in geographically concentrated markets, limited branding, non-scalable operations, and limited services/technology, with the vast majority of landlords owning one to five units (mom-and-pop operators).
- In 2012, Jonathan D. Gray, the head of real estate at Blackstone, thought he could “professionalize” the fragmented single-family-rental market and blazed a trail for Wall Street when the firm formed Invitation Homes. Through scale, centralized operations, and technology solutions, the firm created a portfolio of tens of thousands of single-family rentals across the country that could operate much more efficiently than the mom-and-pop landlords they competed against.
- Blackstone’s early bet on the single-family rental market paid off, with the firm reaping about $7bn from their investment in Invitation Homes, or more than twice what they invested, according to securities fillings. By being early, they had a first-mover advantage and were able to secure the best properties in the best markets before the competition arrived, leading to outsized gains ($3.5bn).
- Today, institutional owners own more than 350,000 units, with the largest, often publicly traded, players like Invitation Homes (INVH, previously owned by Blackstone), American Homes 4 Rent (AMH), and Tricon Residential (TCN) — each owning tens of thousands of rental homes.
Parallels to the short-term rental market:
- Before 2008, short-term rentals existed, but they were dominated by mom-and-pop operators in traditional, drive-to vacation markets. Then in 2008, Airbnb revolutionized the home-sharing concept and essentially created a new category of rental housing. Similar platforms emerged, and in a relatively short period, this alternative lodging market has evolved to become a widely accepted, mainstream industry.
- Through the proliferation of booking platforms, the demand side of the short-term rental equation has been rapidly institutionalized, with major players like Airbnb and VRBO facilitating hundreds of millions of stays each year.
- However, we have yet to see the supply side of the short-term rental market similarly institutionalize, and the industry remains hyper-fragmented. While we are seeing an increase in professional hosts (STR 2.0) on the platforms, they are still facing many of the same challenges that the single-family rental industry faced a decade ago. These players tend to be: geographically concentrated, with limited branding and non-scalable operations due to the high operational burden required today.
- Finally, we are just starting to see consolidation on the technology side - both hardware and software - that allows for true scalability. Like in the early single-family rental days, the bulk of the tedium and challenges that led skeptics to doubt the business stemmed from manual processes that required physical presence and oversight. Today, PropTech companies are developing critical technologies for single-family rental and multifamily landlords that STR owners can use to help operate and scale their businesses, such as access control, guest management, and payment processing.
The culmination of these factors builds confidence in our vision that now is the time to act and develop the largest, most institutional-grade portfolio of short-term rental assets, to eventually exit to an institutional player like Blackstone as they enter the space. Given this backdrop, it’s easy to see that we aren’t looking to recreate the wheel but instead bet that history (i.e., what happened with single-family rentals a decade ago) will repeat itself. As institutions look to this nascent asset class for the attractive risk/return profiles we see today, Stomp Capital will be the turnkey portfolio providing the easiest on-ramp for exposure in the space. Don’t miss your chance to invest alongside us today.
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