Building for lease is a trend in times of high interest rates – 05/26/2023 – Market

With real estate credit more expensive and less accessible in Brazil, builders and developers invest in multifamily, a concept that already represents 80% of the rental market in the United States.

In this modality, all apartments or houses in a development are for rent and have a single owner — usually a company.

The owner is responsible for all structural and maintenance costs of the units and for managing the lease, a characteristic that attracts tenants and investors.

The Patrimar Group, which operates in Belo Horizonte, Rio de Janeiro and the interior of São Paulo, partnered with the real estate developer Performance Empreendimentos Imobiliários on two brands to operate in the multifamily concept throughout the country. Together, they invested BRL 350 million. Patrimar estimates to manage 5,000 properties using the model in eight years.

“It is a consolidated concept in the United States, Mexico and Europe, as it is a very interesting alternative for the tenant. The customer’s journey is simpler, because the company lives off this asset”, says Renato Leite, COO of Performance Empreendimentos Imobiliários .

In the last 12 months ending in March, the price of housing rentals recorded the highest increase since 2011: 17.18%, without considering inflation, according to FipeZap+. The cumulative increase is three times greater than official inflation.

“The high interest rate affects the buying market [de imóveis], mainly for our middle-income audience. It ends up resulting in a positive scenario for leasing. There is a very large demand, either by necessity or by choice. About 30% of the Brazilian population lives on rent”, says Leite.

“The rent in multifamilily follows the market, without price differentiation, but with quality”, says the executive.

The option for multifamily developments is directly related to the experience of those who live there, in addition to the quality of the architecture and the location of the property, according to Jorge de Moraes, director of operations at Vila 11.

“People seek to live in places with mobility options, leisure infrastructure, services, and as close as possible to work. In general, where many want to live, but not everyone would be able to buy a property”, he says.

Moraes says that, in the last 12 months, Vila 11 was sought by more than 25,000 potential residents. The company has 16 assets in various stages of development of the multifamily concept, with five buildings in operation and a sixth to be inaugurated in the next semester.

“In total, we already have 609 apartments, with more than 430 residents. Vila 11 Frei Caneca, the company’s last opening, was in great demand, with more than 50% occupancy in just 3 months of operation”, he says.

Those who choose to rent a multifamily property can choose semi- or fully furnished units, with appliances and internet, without the need for a guarantor, deposits or other traditional guarantees. In the common areas, residents have spaces for work and leisure that are always renewed.

As companies in the segment are interested in keeping the building always attractive for lease, the façade, common and private areas tend to have up-to-date maintenance.

Owners of multi-family units, in general, offer the possibility for the tenant to move at any time to another house or apartment under their management. Initiative that assists those who need to change neighborhoods —because they have changed jobs or schools, for example— and reduces vacancy in properties.

The concept also attracts investors from the real estate market through real estate funds specializing in residential income or in the purchase of a specific residential unit for lease.

On the market since 2019, Housi manages more than 75,000 residential units belonging to small and medium-sized investors.

“Multifamily is a reality, because there is a growing demand for this housing format. However, interest rates in Brazil drive away institutional capital and prevent leverage”, says Alexandre Lafer Frankel, CEO of Housi.

“Individual investors are the main drivers of the model in Latin America, unlike the US, Canada and Europe.”

MRV & CO created proptech Luggo to manage the properties it builds. Apartments are sold to Brooskfied as soon as they are ready for lease, and its investors receive a share of the rents through the Lugg11 real estate fund.

“Even if owning a home becomes more accessible, the rental market also aims to access a customer who does not want to buy a house, but rather has mobility and flexibility”, says Rodrigo Resende, executive director of Luggo.

The construction of a multifamily is faster than in developments built for sale, since the company that develops this type of product ends up accessing other sources of financing, such as real estate funds and institutional investors.

Projects tend to be modular and flexible, and are ready in less time. The high demand for leasing makes it possible to implement projects for classes A, B and C in this format, to make the enterprise profitable.