Investment firm acquires 87-unit, single-family rental home development in Palm Bay

·7 min read

An investment firm has acquired an 87-unit development of single-family rental homes in Palm Bay — part of a growing trend of investors buying up real estate in Florida and elsewhere.

In announcing the $45.7 million deal, the firm, called Fundrise, said its investment in the Cypress Bay development in southeast Palm Bay "fits into our broader strategies to invest in affordably priced rental housing across the Sun Belt."

There are concerns, however, that this trend could further exacerbate the difficulty of moderate-income residents in their attempt to find affordable homes to buy or rent.

Separately, Fundrise also is investing in the construction of a 252-unit apartment community in southeast Palm Bay.

An investment firm has acquired a 87-unit, single-family rental home development in Palm Bay called Cypress Bay in a $45.7 million deal.
An investment firm has acquired a 87-unit, single-family rental home development in Palm Bay called Cypress Bay in a $45.7 million deal.

Fundrise says it is "America’s largest direct-to-investor real estate investment platform."

In explaining its strategy and how the Cypress Bay deal fits in, Fundrise said: "From millennials to retirees, a broad group of Americans has been taking part in a migration from Northern to Southern states over the past decade, driving continued demand for well-priced, well-located real estate, and supporting steady returns for disciplined investors. We believe that this long-term trend has only been further accelerated by the pandemic."

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Cypress Bay is located west of Interstate 95 and east of Babcock Street. Fundrise said the properties in Cypress Bay it acquired include three-, four- and five-bedroom homes, "each with its own attached garage and pet-friendly, fenced yard." The homes were built by D.R. Horton, which has been the largest homebuilder by volume in the United States since 2002.

Fundrise said that, "in an economy where remote work is becoming the norm for more and more people, we expect that an increasing share of the population won’t need to live in expensive gateway cities, and will instead seek out locations that offer lower living costs and more agreeable climates."

Fundrise said the rental homes in Cypress Bay it acquired include three-, four- and five-bedroom homes, "each with its own attached garage and pet-friendly, fenced yard."
Fundrise said the rental homes in Cypress Bay it acquired include three-, four- and five-bedroom homes, "each with its own attached garage and pet-friendly, fenced yard."

Fundrise said its intent with this and other investments in single-family rental properties is to build a portfolio "that generates consistent income through rental payments from tenants, while these properties also have the potential to grow in value over time."

A FLORIDA TODAY analysis of real estate properties in Brevard County found that at least 19.8% of Space Coast properties are investor-owned, up from 13.7% in 2013.

"Capitalism with more heart"

Kenneth Delgado, senior pastor at The House Church in Palm Bay, said he will want to see how such investor-owned housing developments affect the affordable housing market in Palm Bay and elsewhere.

Delgado is an organizer of One Brevard, a coalition of dozens of faith-based entities and businesses in Brevard County working to address a number of community issues, including affordable housing.

Delgado said he would like to see how the new investors involved in the Cypress Bay rental housing development proceed on renting their homes in the community.

He realizes investors need to make a profit on their investment and "this is a free-market society," but added: "I like capitalism with more heart."

Delgado compared it to someone who has a patent on a life-saving drug. That person has several options — including marketing it for $1,000 a dose just because he or she can; or marketing it at a more reasonable price and "make it affordable for John Doe," while still making a profit.

Palm Bay Mayor Rob Medina said he sees both sides to the issue of additional investor-owned housing within the city, and doesn't believe the Cypress Bay deal will negatively affect Palm Bay's housing market.

"Rental properties in the city are in high demand, so having additional rental options in the city is beneficial," Medina said. "We have many new residents moving into the area, and rentals are helpful in serving them. The city of Palm Bay has had thousands of new single-family homes built in the past few years, with no signs of slowing down. We have multiple new subdivisions in various phases of review and construction, as well as single-family homes being built on scattered lots throughout the community."

So the deal for the 87 single-family homes in Cypress Bay "will have minimal effect on Palm Bay’s home inventory," Medina said,

Additionally, Medina said, because these houses are rentals, versus individually owned, "the city actually receives a greater amount of tax revenue, which helps us serve our community to meet the needs for police, fire and other core services."

Medina said Palm Bay is working to address the issue of affordable housing, including the City Council approving changes in city ordinances to allow for so-called "tiny homes" and "tiny homes on wheels" to be developed. This includes efforts to allow small planned unit developments in which developers could build entire communities of tiny homes.

Additionally, the City Council earlier this month designated about $5 million in federal American Rescue Plan Act funding that Palm Bay received for use in addressing affordable housing issues and homelessness in the city.

In discussing its Cypress Bay deal with D.R. Horton, Fundrise said it acquired the development from "a major, nationally renowned homebuilder, who wrapped up construction at the community in February. At the time of our acquisition, approximately 41% of the homes were occupied."

"Given how recently construction of the community was completed, we anticipate that the homes will remain competitive, attract tenants, and support rent growth for the foreseeable future, without significant capital needs for renovations," Fundrise said. "We expect to work with a professional property manager, and to be a long-term owner over the next several years to a decade."

Fundrise said its intent "with this and other investments in single-family rental-home communities is to be a long-term investor, building a scaled portfolio that generates consistent rental income, while at the same time being positioned to capture what we believe will be outsized price appreciation, thanks to a confluence of demographic factors driving demand across the Sun Belt."

Why Cypress Bay: Location

Fundrise said it targeted Cypress Bay for this investment partly because of its "great location" on Florida's Space Coast, not far from Kennedy Space Center and Orlando; Brevard County's population growth; and Palm Bay's recognition "as a hub for excellent job, wage and high-tech growth."

It said Cypress Bay is a "high-quality asset" and is "social distancing-friendly," because of "the privacy provided by the community's fully detached and individual homes will be particularly attractive attribute to renters."

This $45.7 million acquisition was made through a joint venture between two Fundrise-sponsored funds totaling $21.6 million, combined with a $24.1 million loan.

Fundrise's single-family rental home portfolio consists of 61 communities in 23 metropolitan areas and 10 states, particularly focuses in the Sun Belt.

The company also invests in apartment communities, commercial properties and mixed-use developments.

Among the 254 real estate assets Fundrise lists on its website is a $6.03 million investment in the construction of the Mason Palm Bay, a 252-unit apartment community near Emerson Drive and Malabar Road in southeast Palm Bay.

"Our loan will be used to finance the construction of this new community, which the borrower expects will take roughly two years to complete," Fundrise said on its website. "At that point, they expect to lease up the units and pay back our loan via a sale or by refinancing once the property is stabilized. The goal of this investment is to produce an attractive income stream through financing the creation of new housing in a growing area."

Fundrise said it is in partnership with Waypoint Residential on the Mason Palm Bay project. Waypoint has invested more than $2 billion across more than 20,000 rental housing units in the South, Southeast and Midwest markets. Fundrise said it previously has invested in eight other similar projects with Waypoint Residential.

Fundrise said the average annual return for all Fundrise client accounts was a 22.99% during 2021.

FLORIDA TODAY data reporter Amira Sweilem contributed to this story,

Dave Berman is business editor at FLORIDA TODAY. Contact Berman at Twitter: @bydaveberman.

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This article originally appeared on Florida Today: Investment firm makes $45.7M deal for Palm Bay rental home development