The Seven-Year Overhang Is Gone — Now BTR’s Real Test Begins

For months, one of the most closely watched regulatory questions in the build-to-rent sector hung unresolved: would investors be forced to divest communities after seven years, creating a structural liability that made long-term underwriting nearly impossible? The 21st Century ROAD to Housing Act has answered that question — the provision is off the table, and the billions of dollars in institutional capital that had been parked at the sidelines waiting for clarity now have a cleaner path forward.

Jason Ross, managing director and head of acquisitions at Peakline Real Estate Funds, has been in the middle of this market throughout the uncertainty. Having helped source and structure approximately $1.3 billion in residential, mixed-use, and build-to-rent investments, he has a firsthand view of how institutional investors were navigating the ambiguity — and where they’re likely to move now that the rules are clearer.

Ross discusses what regulatory clarity means for the BTR sector, where capital is likely to flow, and what separates the deals worth doing from the ones that only look good on paper.

CM: How quickly do you expect capital that was sitting on the sidelines to re-enter the BTR space now that the 21st Century ROAD to Housing Act is officially law?

JR: We are already seeing capital return that was active within BTR before the 21st Century ROAD to Housing Act was introduced, and we expect additional capital to follow now that the legislation is law. The pause in investment began when the proposed seven-year divestiture requirement introduced a forced exit that made otherwise attractive deals difficult to finance and underwrite. Under that rule, an owner could have been required to break up a stabilized community and sell the homes individually, undermining the ability to repay construction debt, assign a credible residual value, and secure agency financing.

With that requirement removed, the market can return to a more conventional ownership model. Deals that were already in motion are likely to restart first, followed by additional capital from single-family rental investors that can no longer acquire existing individual homes and may instead shift toward purpose-built BTR communities.

CM: With forced divestment off the table, how does this statutory clarity change long-term underwriting assumptions, recapitalization strategies, and exit horizons for institutional funds?

JR: When forced divestment was on the table, every BTR community came with a sell-by date that had nothing to do with the asset’s performance. Now, you can underwrite it on its true merits. You can hold it for cash flow, refinance with agency debt and recycle the equity, or sell it to the next buyer when the timing is right.

The new language in the housing act aims to protect market liquidity for BTR and resolves the prohibited-transaction issue that the prior draft had created for institutional investors. This is important because those groups provide a significant share of the capital in the asset class, both for developing new supply as well as for acquisitions of existing communities. With forced divestment off the table, owners have greater flexibility in their business plans as liquidity returns to both the debt and equity markets.

CM: How does BTR’s risk-return profile compare with traditional high-density multifamily?

JR: BTR falls within the same rental residential sector as multifamily but is considered an emerging portion of the rental housing sector because it is addressing an evolving need as the rental tenant base has become broader. With BTR you get the amenities, on-site management, and flexibility of renting, but you’re also serving a larger group of tenants who want a yard and garage and either can’t or won’t buy a home, as well as current homeowners who are done with home maintenance and don’t want to live in an apartment building with shared spaces and walls.

We believe this is a deeper and faster-growing demographic pool than the type of tenants typically occupying Class A multifamily high-rise product. Those demographic differences allow BTR communities to operate at higher occupancy with less turnover. Someone who moved for the schools and an extra bedroom is less likely to leave after a year than a downtown renter, so the rent roll tends to remain steady and that is one of the key factors that can support more favorable pricing upon exit.

On the development and construction side, BTR offers multiple risk mitigants compared with multifamily. Townhomes are generally simpler and less expensive to build than high-rise multifamily, and phased delivery supports lease-up because homes can be leased as they are completed rather than waiting for a final certificate of occupancy for the entire community. Apartments currently have an edge in market depth: more trades and more comparable transactions make them easier to underwrite. With BTR, you are getting a comparable or better yield and stickier income, but in a more niche and emerging asset class from a capital markets perspective.

CM: Where are the most compelling BTR opportunities today, and how are seller expectations changing?

JR: We believe the best opportunities today are assets that cannot be easily replicated, located in supply-constrained markets and micro locations with good schools, easy access to major job corridors, and a large gap between the cost of owning and renting.

In addition to location, product type has come under greater scrutiny as the BTR sector continues to evolve. As more communities have been built, a clearer picture has emerged for the characteristics that are favored depending on the market. Two-car garages, driveways, usable yards, varied elevations, and family-oriented floor plans draw the strongest renter and buyer pools. Undistinguished design, inadequate parking, or a site on the edge of the MSA has shown to be less favorable with both tenant demand and buyers upon exit.

While sellers have adjusted their pricing expectations somewhat from the low-rate environment, competitive refinancing markets have allowed many owners to hold and create long term value and market adoption, rather than sell. As a result, transactions are concentrated among a smaller subset of BTR assets, where buyers are willing to meet seller expectations for superior locations, product, and operating performance.

CM: What will the BTR market look like over the next three to five years?

JR: Over the next three to five years, we believe BTR should become a larger and more established sector of rental housing for several reasons. The tenant demand that had initially driven the growth of scattered-site single-family rental homes will continue to create demand for a differentiated product serving similar needs. BTR addresses the housing market’s “missing middle,” which is the gap between traditional scattered-site SFR homes and mid-rise and high-rise apartments.

Additionally, the supply-and-demand outlook remains favorable. We are not building enough single-family homes to keep up with household formation and the gap between the cost of owning and renting continues to widen, creating persistent and increasing demand for options like BTR communities. While the BTR market continues to mature through broader access to debt, more sales transactions, and a deeper buyer pool, the market will also need development activity to increase to meet anticipated demand over the next five years. We believe all these trends will contribute to increasing adoption of this sector of the rental housing market transitioning BTR from a niche and emerging asset class to a core anchor of investor real estate portfolios.