Far From The Madding B2R Crowd: AHV's Infill Instinct Stands Apart
Never say never in real estate, but we're going to go out on a limb and predict something we think you can safely take to the bank:
Mark Wolf and the game-change firm he and co-founder Spencer Rinker conceived of in 2012 and launched the following year – AHV Communities -- will not be involved in single-family-built-for-rent's biggest, sexiest land deal in 2021 or 2022, nor maybe ever.
Those early years, a couple of other upstarts, Rinker, and Wolf were hard-pressed to persuade others – builders, developers, investors, etc. – of the self-evidence of purpose-built horizontal rental communities for people who wanted street-level, backyard living and a fuss-free, luxury property-managed lifestyle.
They knew it was a good, solid business, that a best-of-both-worlds client-like rental experience in a single-family home in an intentionally set up and programmed community had legs.
Convincing others of that was no mean feat. That was then.
What they couldn't know then, was ...
And, here we are, looking at estimates of up to $60 billion in corporate investment looking to ramrod its way into residential real estate's belle of the ball. A feeding frenzy, where operatives from private equity and institutional investment companies have been outbidding strategic builder and residential developer rivals by a mile, for tracts 30, 40, 60 minutes out into "path-of-growth" frontiers.
The moment, for AHV and for several others of the more strategic players who broke the new ground so many others are trammelling these days for a quick payoff, is navigating an "us and them" narrative.
Wolf draws on a metaphor.
We're in the farming business, after all," he says. "We're cultivating our communities for long-term harvest. We hold to a belief this is a local business. Now, you have private equity funds, where quants generate models on their laptops, spitting return outcomes that validate bids on land that are 10%, 15%, 20% higher than any strategic IRR analysis can justify. Our conclusion in this feedback loop of social-media amplified noise is simply this. We are going to stay true to ourselves."
Take the 52-acre infill tract Wolf's AHV team just closed on this week in the San Antonio market as an example. The working-project name for what will be a 330-home neighborhood – nested "Main and Main" -- within the 1604 and 35 outer loops of one of America's fastest-growing cities is Toepperwein. Plans now are for the project to break ground in second quarter 2022, and open for lease-up in early 2023.
Less a "Play," More a Place
Toepperwein, in magnitude, dollar-size, and intention qualifies less as the kind of "play" corporate investment in the white-hot channel of single-family build-to-rent ground-up developments has catalyzed. Instead, the deal stands more as the kind of place AHV has invested in by design, where long-term renters want to live and why.
Our approach is holistic, and while we're meticulous in how we pencil our deals, the driving idea is to make neighborhoods that people prefer to live in," Wolf says. "Apartments work or don't work driven by location. That's exactly the same for our business. Our communities need to be people's preferred place to live."
For Wolf, the hairy infill zoning challenge of AHV's Toepperwein stands illustrative of a use-case in business strategy and business sector compare and contrast. For one, a hairy 52-acre, limited-density, MF-33 zoning infill tract – won't likely get bid up by virtue of a quant-based pro forma.
With 330 homes, our density's just a little shy of 6.4 homes to the acre, so we're not using nearly the density we got zoning approval for," says Wolf. "That gives us our ability to preserve wooded areas, and give our community the spaciousness we go for."
For another, the northwest San Antonio site's ultra-convenient "hole-in-the-donut" access to downtown job centers, as well as north to New Braunfels.
In 2019, 30% of all migration to Texas came from California. San Antonio, already the nation’s seventh largest city, has been experiencing that migration firsthand. That same year, 20% of all migrants to the Alamo City came from California. San Antonio’s population grew 8.9% in the last five years and is projected to continue that level of growth over the next five years. Jobs in San Antonio grew by 4.6% (50,166) over the last five years and are projected to grow by 67,475 over the next five years, outpacing the national growth rate of 0.0% by 4.6%.
The project will feature a GMD Design Group product mix of high-concept farmhouse style single-family detached and duplex homes with two-car garages, integrated with a set of Class A amenities – walking trails, resort-sized pool, 5,000 square-foot clubhouse, bocci, fitness center, dog park, etc. – that have been a signature of AHV properties. Fact is, the "coming soon" plan runs consistent with AHV's sweat-the-details, end-to-end, sourcing, entitlement, development, construction to leasing and ongoing maintenance approach to its community model.
Now 16 communities in, with a $1 billion pipeline of 11 projects in various stages of construction, located in all four Texas MSAs, Denver, Nashville, Seattle and Southern California, the need – Wolf attests – is to double-down on the AHV model, and steer a course of differentiation and contrast from the catapult capital now at work in the space.
The challenge for the AHV strategic team – similar to that of other strategic players in homebuilding and residential development – is to be the best in the business, and to differentiate themselves from peers in their industry.
We've got 27 more deals across AHV's operating footprint in letter-of-intent," he says. "What we're married to are parcels where we can do our thing with the flow and design and the placemaking and amenitzing of the community. Many of our locations are more challenging, because the better the location the smaller the land parcel is going to be. That's going to be a deal breaker for the more financially-driven players these days. That's what it means for us to stay true to who we are."
Whether or not the purpose-built single-family-for-rent juggernaut blew up into the biggest thing in real estate for the next few years thanks to a latter-day deluge of rent-by-choice and rent-for-financial-reasons households may impact AHV Communities, but won't change it.
The crush of capital now into a space many thought Wolf and Rinker were crazy to get into almost a decade ago may come as vindication, but it also comes with complications.
There's no one-size-fits-all success formula for this business," Wolf says. "There are Fords, Chevys, Dodges, Hondas, Toyotas, and Ferraris. We're going to do what we do."
So, go ahead. Place your bet that AHV will not be grabbing banner home-page business headlines with its land transactions.
However, after what's unsustainable about the current market pronounces itself and plays out, we'd also bet that AHV will be around, reaping the harvest of the fields it's cultivating today.