The Crittenden Interview - Bison's State of the Market on SFR and BFR Lending

Bison Financial Group recently arranged a $1.4mm refinance loan secured by a portfolio of single-family rental properties in the Charlotte, North Carolina MSA. This was the latest closing on over of $100 million that Bison has arranged in this space since 1994.
David Repka, principal of Bison Financial Group, was asked to discuss the state of the market with regards to the SFR (single-family-rental) and BFR (build-for-rent) lending arena.
The interview is part of a series of interviews that David has provided for The Crittenden Report over the years. This interview will be in The Crittenden Report in June 2025.

Q: What are your predictions for single-family-rental (SFR) and build-for-rent (BFR) lending going forward?

David Repka:
Short answer: massive growth! People gotta live somewhere - they will continue to be attracted to the privacy of renting single-family homes featuring a yard for their kids & dogs and a garage to store their cars, bikes & kayaks.

Long answer: There are two distinct pools of prospective renters:

Renters by Necessity
Renters by Choice

Renters by Necessity: “American Dream of Home Ownership” is evaporating right in front of our eyes. Home prices have outpaced inflation by 2.4 times since the 1960s, causing a crisis of affordability [footnote 1]. This is exacerbated by current market conditions: interest rates are up, insurance costs are up, construction/renovation costs are up, personal debt burdens are at historic levels [2], and consumer confidence is bumping along all time lows [3]. As the cost of borrowing goes up, the amount a consumer can borrow to buy a home goes down requiring ever larger down payments. As it becomes harder and harder for a consumer to scrape together a down payment to buy a home, they will be trapped as renters as their American Dream of home ownership vanishes.

Renters by Choice: This tenant profile prizes convenience, career flexibility, and a low-hassle “YOLO” lifestyle more than long-term equity buildup. They enjoy the privacy, low density, gated access, dog walking trails, and resort-style amenities found in the latest generation BFR communities. Weekends can be spent with friends and family dining out, gathering shells on the beach or playing pickleball, not doing back-breaking home maintenance chores.

Q: What will be the biggest trends/changes in SFR/BFR lending going forward versus years past?
David Repka: Portfolios of scattered-site rental houses, as an investment class, have evolved from a beaten-down and disrespected asset class to a must-own asset class. Pre-Great Recession portfolios of rental houses were for “Mom & Pop” investors just starting in their real estate investment careers until they could afford to buy “real investment properties” like an apartment complex, an office building, or a mobile home park. Post-Great Recession they now are the must-own asset class of institutional players like Progress Residential with 90,000+ homes, Invitation Homes (merged with Starwood) with 84,000 homes and American Homes for Rent with 61,000+ homes. Scattered-site single-family rentals and purpose-built communities of homes built for rent are viewed as “horizontal apartments” with much greater “tenant stickiness” than traditional apartment communities. Tenants enjoy the lifestyle and stay longer than in traditional rental apartments. Capital will continue to pour into this sector.

Q: How will underwriting change for these loans this year?
David Repka: Lenders find it easier to look in the rear-view mirror of historical financial statements than take on the risk of projecting future income and expenses on ground-up projects. Existing properties with at least three years of operating history will find the most success in attracting funds. Historical financials allow a lender to determine a property's Underwritten Cash Flow (NOI minus Reserves for Replacement) to determine a value via a capitalization rate and the corresponding debt coverage ratio. While loan to value ratios on portfolios of scattered rental houses hold steady with risk-based pricing ranging from 55 to 75%, loan proceeds are more often determined by Debt Coverage Ratios ranging from a low of 1.1 to 1.55x. Portfolios of rental houses attract risk-based pricing so the lower the LTV and higher the DSCR, the better the pricing.

The future is less optimistic for the construction of new projects due to the rise of interest rates, construction costs, real estate taxes, insurance, and construction costs previously mentioned. It will be harder and harder for a project to “pencil” and attract capital. In previous market cycles projects with a yield on cost of 5.5 to 6.0% were able to achieve financing. In the current environment lenders are seeking projects with better than a 7% return on cost. Lenders will size construction loans based on the most likely exit strategy with a margin of safety. This means lenders will underwrite to a refinance at 65% LTV with 1.35x DSCR. Developers will need to bring more equity to the table than in recent years. We’re starting to see Developers willing to explore C-PACE and EB-5 programs to generate higher leverage.

Q: What type of SFR/BFR properties and projects will lenders target? (class, location, size, number of units)? What type will be the toughest to finance?
David Repka: Top 100 MSAs in a blend of primary, secondary, and tertiary markets. The sweet spot is workforce housing for “neighborhood heroes” like nurses, first responders, teachers, government workers, etc., with dependable monthly income. Small markets, rural markets, and markets with an over-concentration on any one industry will find it hard to attract financing. Lenders are biased to strong sponsors with a documented track record in the space, and solid post-closing liquidity of 10-20% of the loan amount.

Q: What will be the typical leverage on these deals?
David Repka: Leverage on acquisitions and new construction projects will top out at 75% for the best projects with the best sponsors. This compares to up to 85% of cost just a few short years ago. More typical leverage is 55 to 65% loan-to-value.

Q: What will be the typical interest rates?
David Repka: Non-bank lenders will offer interest rates on non-recourse construction loans and heavy-lift rehab loans starting at SOFR plus 650 to 850bp. Stabilized properties will be financed at fixed rates in the high 5s to mid 6s depending on LTV, debt coverage and dollar amount. Risk-based pricing applies: best rates for larger pools with lower leverage and strong debt coverage.

Q: What are the hottest markets for SFR/BFR? What markets will lenders shy away from? Why?
David Repka: Hot markets will be Florida, Texas, Arizona, and the Carolinas. Growth due to job creation and quality of life in a post-Covid pandemic world.

Cold markets: There will be continued flight from very dense urban markets to suburban markets and Southern, warm weather, low state income tax markets. An unintended consequence of Covid-19 is that people that can work from home will work from home. A person who was paying $4,000 a month to live in a cramped urban market in the Northeast can rent a beautiful detached, purpose-built rental home in a Built-for-Rent Community with a state-of-the-art home office for $2-2,500 a month.

Q: What will lenders look for from sponsors when underwriting? (certain net worth, liquidity, number of other properties, etc.)
David Repka: Construction lenders and heavy-lift rehab lenders will want their borrowers to have a net worth at least 100% of the loan amount with post-closing liquidity for 10-20% of the loan amount. Permanent lenders will require net worth of 25 to 50% of the loan amount and post-closing liquidity for 5 to 10% of the loan amount. The ideal borrower will have 3 to 6 months of post-closing cash reserves to pay debt service on their portfolio.

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