#2 - SFRs Explained

Hello GPs and LPs,

In our last update I attempted to give you a bit of insight into the formation of the firm itself (SEVILLE Capital Partners) and how we got the idea of coming together to do something different in the alternative investment space. In this update, hopefully I can give you a bit of insight into the objective of our first fund, why we chose SFR (Single Family Rentals) as the asset class to invest in, and why we think it is such a great choice.

THE OBJECTIVE
We are creating a real estate syndication to invest in single family rental homes in high performing blue chip school districts. The MAIN objective is to raise capital in order to do the following:

• Acquire the homes.

• Improve the homes.

• Rent the homes to qualified tenants.

• Oversee the maintenance and operation of the assets in the portfolio.

• Create monthly revenue streams for our investors by way of dividend payments.

• Sell the homes for a higher price when we the fund closes.

• Return initial capital contributions to investors including appreciation and interest.

The byproduct and expected outcomes of these actions are as follows:

• Our firm will gain footing and establish credibility as a new investment manager.

• We will grow our AUM (Assets under Management) and create a baseline for returning dividends and capital to our investors at regular intervals.

• We will establish the required relationships needed to diversify into other asset classes as we scale and grow.

• We will have an opportunity to identify areas of weakness and refine our operational capabilities in preparation for investing in larger institutional assets (i.e. apartment buildings etc.)

• We can learn from our mistakes without it costing us millions of dollars.
  

THE DETAILS
With us being a new firm, and me being a new fund manager, I expect that our experience in the early days will be similar to being the “new kid on the block”. There will be larger funds with more AUM, with more experienced managers and with larger investor pools. The fund managers that have been managing funds for years, or even decades, will have years of experience to guide them and deep networks or HNWIs and Family Offices to use to their benefit, even when things are not going well, or they are not performing to their LPs standards. We don’t have any of that.

What we DO have is a deep understanding of single family residential market in the chosen target area (DC Metro) and years of experience as owners, investors and brokers of this asset class. We also have a purpose built infrastructure already in place to acquire, improve and manage SFRs at scale.

There are two main types of SFR portfolios:
Scattered Site SFR
Build to Rent SFR
Our focus is on Scattered site SFR

_{“The rise of single-family rental (SFR) and build-for-rent (BTR) housing largely began in the aftermath of the Great Financial Crisis. Large single-family home aggregators started buying mostly vacant homes to rent, which in turn stabilized local housing markets and created economic growth, as well as jobs. Spurred on by changing demographic trends, the demand for attainable single-family living, increased space requirements, and less dense neighborhoods, SFR created a new commercial real estate asset class demonstrating favorable, outsized returns.”
REF: SINGLE-FAMILY RENTAL & BUILD-TO-RENT: THE EMERGENCE OF A LEADING ASSET CLASS}

Since the great recession of 2008 and the pandemic of 2020, macro drivers for Single Family Rentals have spurned waves of new investment from retail and institutional investors. As institutional capital continues to pour into this asset class it is important to understand what is driving the demand:

Even during recessionary periods, single family rents have stayed positive:

The Single Family Rental market remains a resilient asset class and has historically made up one third of all rental housing stock across the U.S.

SO WHAT DOES THAT MEAN FOR US?

We have identified SFRs as an asset class that will allow us to gain entry into a previously restricted world of alternative investments on our own terms. Many large cap funds know that single family rentals are a great asset class to invest in but do not want the headache of managing individual properties themselves. This is where we have an advantage. Our purpose built infrastructure includes our own full service real estate brokerage, our own general contracting company with in house subs, trades and PMs, and a property management company. Our area of operation also includes the analysis of some of the best school districts in the region. We have directly identified that the quality of the school system has one of the biggest impacts on the price of real estate in the area. Simply put, we plan to invest our capital in the areas that have the best schools. The areas that have the best schools have the best real estate. SIMPLE.

BEST SCHOOL DISTRICTS IN MD
https://www.niche.com/k12/search/best-school-districts/s/maryland/

 BEST SCHOOL DISTRICTS IN VA
https://www.niche.com/k12/search/best-public-high-schools/s/virginia/

DC METRO AREA COUNTIES RANKED FOR QUALITY OF INVESTMENT

• Montgomery County, MD

• Loudoun County, VA

• Fairfax County, VA

• Alexandria, VA

• Arlington, VA

• Howard County, MD

• Falls Church, VA

HOW DO WE CALCULATE THE STRENGTH OF THE RENTAL MARKET?

PRIMARY METRICS

• School system ranking

• Public High School Ranking

• Units rented in the last 90, 180 days

• AVG days on market

• AVG rental price (total, psf)

• AVG price PSF of local sales

• Units sold in the last 90, 180 days

SECONDARY METRICS

• Neighborhood Safety

• Access to public transportation

• Nearest hospital and medical facility distance and quality ratings

• Walkability score

• Nearby amenities

• Access to local shopping, dining, etc.

TERTIARY METRICS

• Small business and local economy; locally owned businesses

• Path of progress

  • New construction, housing developments

  • Public infrastructure and public transportation development

  • Rate of job growth, economic activity

  • Lifestyle and quality of life

  • Population migration

  • Sports and entertainment

NEGATIVE FACTORS (THINGS THAT PREVENT US FROM INVESTING)

• Low quality schools; non performing schools

• High crime rates

• Poor maintenance; blighted properties

• Distressed properties; foreclosures

• Closed or non performing businesses

• Noise, pollution and trash

I can provide you with a ton of other data points we have analyzed that support our investment thesis, but we want to keep this brief and make sure that the main things remains the main thing. Our focus is to provide a high quality investment opportunity to our investors that will return high quality alpha on a monthly basis.

In our next update we will provide a status on the finalization of the thesis, the pitch deck, our initial capital raise goals and plans for the remainder of the year while we prepare to launch. If you know anyone who might be interested in what we are doing, please feel free to invite them to subscribe at no cost or obligation to them. SUBSCRIBE

v/r,

Michael Gillespie
General Info: [email protected] 
LP Newsletter - sevillecapital.beehiiv.com