Real Estate

As millennials flee coronavirus-ridden cities, JP Morgan teams up with American Homes 4 Rent to build large suburban rental homes

Key Points
  • American Homes 4 Rent, a California-based, single-family rental REIT, recently closed on a deal to build 34 homes in Sovana and Spring Valley, the former on the outskirts of Las Vegas and the latter a close-in suburb. They will be larger homes, 12 three-bedroom units and 22 four-bedrooms.
A house for rent in California.
Getty Images

In its first joint venture with JP Morgan Asset Management, one of the nation's largest single-family landlords is building its own rental homes near Las Vegas, NV, banking on a new millennial push to the suburbs--a push now accelerating due to the coronavirus.

American Homes 4 Rent, a California-based, single-family rental REIT, recently closed on a deal to build 34 homes in Sovana and Spring Valley, the former on the outskirts of Las Vegas and the latter a close-in suburb. They will be larger homes, 12 three-bedroom units and 22 four-bedrooms.

The deal is clearly an effort to capitalize on a new desire among city-dwellers to find additional space in pristine, new homes outside the dense downtowns besieged by the deadly coronavirus outbreak.

"We see this shift as particularly prevalent among the millennial generation, the largest U.S. age cohort, who are looking to transition away from apartment living," said Mike Kelly, Head of Real Estate Americas at J.P. Morgan Asset Management. "The move towards more spread-out living is also expected to accelerate in the wake of the COVID-19 pandemic, and we anticipate strong occupancy and rental growth rates across properties."

The first home deliveries are expected this June and completion is anticipated by October 2020. And that's just the beginning. The two are looking to spend $625 million to develop approximately 2,500 single-family rentals across multiple markets in the West and Southeast.

As of March 31, 2020, American Homes 4 Rent owned 52,776 single-family properties in 22 states. J.P. Morgan owns a similar number of multifamily units on behalf of institutional investors throughout the United States, according to the release.

"Coupled with our innovative mobile technology platform that enables prospective residents to tour homes without an agent and manage their rental experience online, we believe that our built-for-rental development program has the potential to revolutionize the single-family rental industry. This really is a case of the right strategy, at the right time, with the right partner," said Christopher Lau, chief financial officer at American Homes 4 Rent.

In an interview in April, American Homes 4 Rent's CEO, David Singelyn, said the company may also increase purchases of homes, especially if prices weaken and more distressed properties come on the market. Millions of borrowers are already part of mortgage forbearance programs, delaying their monthly payments. 

 "I wouldn't rule it out. The question is, when that forbearance period ends, how does this all unwind? There is potentially going to be a number of people, landlords or homeowners, who don't have income and have difficulty maintaining that residence," said Singelyn.