The following article appeared in the 8/10/23 edition of Charlotte Business Journal:
Raising the roof: How developers are building a new market around luxury, rental townhouses
By Laura Williams-Tracy, Contributing Writer, Charlotte Business Journal
Eric Speckman, left, and Andy Lucas, both principals at Beauxwright, are pictured at the Bowery West rental townhome and apartment project under construction on Wilkinson Boulevard.
The rental townhouse has gone upscale.
No longer is renting a townhouse just a stepping stone toward homeownership. As part of the growing build-to-rent trend, some developers and luxury homebuilders in Charlotte have tapped a segment of the market with monthly rates reaching $10,000.
BTR is the industry term given to purpose-built housing that’s designed to be rented rather than sold. The properties are usually owned by real estate investors and serviced by professional management. BTR can be either multifamily or single-family rental, and demand has been on the upswing due to limited for-sale inventory and higher mortgage rates.
But for emerging luxury townhome renters in Charlotte, choosing a BTR option has nothing to do with affordability. Renting a posh townhouse meets what is typically a temporary need without sacrificing convenience, privacy or luxury.
“If you are building a $3 million house in Charlotte and you need a place to live for two years, that discerning buyer wants a home, a nice place to be,” says Tim Pratt, president of Copper Builders, a luxury single-family builder with a growing portfolio of BTR townhouses. “Charlotte is not slowing down at all, and housing supply has not recovered at all. People need housing, and BTR serves that need.”
How much does it cost to rent a luxury townhouse in Charlotte?
Copper Builders partnered with developer Delray Ventures on The Townes at SouthPark, a four-building, 19-unit project that opened for leasing at Thanksgiving. By July, it was fully leased. The most expensive townhouse there goes for $10,000 a month, while others range from $6,000 and up.
Delray Ventures saw BTR’s potential long before it became the hottest buzzword in real estate.
In 2014, the company developed 2100 Queens, a four-story, 19-apartment luxury project in Myers Park. It was intended to fill a void in the market for luxury three-bedroom, three-bathroom apartments in the city. It thrived, and today monthly rents there push nearly $6,000.
“Through that experience we got feedback that, ‘Gosh, wouldn’t it be great if you had something just like this but it wasn’t in a building that has a person above us or a person below us,” says Daniel Jimenez, a principal with Delray Ventures. “That was what created the urge for us to find a townhome development opportunity.”
When a SouthPark site near the corner of Fairview and Park roads became available, Delray jumped at the opportunity to develop The Townes at SouthPark.
The 19 units in the boutique community offer four bedrooms and four-and-a-half bathrooms, two-car garages, Thermador appliances, fireplaces, Calacatta gold countertops and electric vehicle chargers. Two units feature elevators. The popular interior units include a second primary suite on the garage level instead of a bonus room.
“Normally you see the end units are the first to go because there is more light. Here in this community, the middle units were the most desirable,” Jimenez says.
With finishes and designs that mimic nearby homes priced at $2 million, Delray knew Townes at SouthPark demanded a luxury home builder. “The beauty of what we have created is that you have your own garage but you still don’t have the headache of maintenance, no HOA dues and no property taxes. Renting, even at this high luxury end, is very attractive,” Jimenez says.
Copper Builders built its reputation on luxury, single-family infill homes at the top of the market but sees BTR as a business line with endless potential, Pratt says. Copper will build about 230 homes this year, and 170 are BTR units, or about 70%.
The product type has taken Copper Builders to Raleigh, where it’s working with developers on two BTR luxury projects. In Charlotte, Copper Builders also had a hand in Altura South End, where townhomes rent for $4,000 monthly and above.
Who is the typical renter for luxury, build-to-rent properties?
For many renters, BTR is a bridge between apartment living and homeownership.
But at the top of the market, interest rates and home prices have little to do with choosing to rent. Instead, it’s a lifestyle choice or circumstance. At Townes at SouthPark, tenants are executives, people in transition from another city, and those who have homes elsewhere or have sold and want to preserve their liquidity as they wait to purchase. Some are professional athletes. Others are families that plan to live in a single-family home in the near future but are either building or haven’t found a home yet.
“If we put these on the market, I’m sure most of our renters in the community could go ahead and buy the unit with cash. They are not influenced by interest rates,” Jimenez says.
BTR is an example of the disruption happening in the housing market, says Matt Langston, a civil engineer and partner with Landworks, which often works with developers on BTR projects early in the development phase.
“What’s happening is the delivery of housing is changing its shape,” Langston says. “We used to have single-family homes that were always for purchase and multifamily that was for rent. Those lines are starting to blur a little bit. It’s a response to the market.”
Most developers prefer to avoid the legal trappings of condominiums, Langston says. Plus, townhomes offer more privacy, giving renters control of their front and back doors, roof and ground level.
Marcie Williams, president of RKW Residential, which provides management for luxury BTR townhomes, says as rents have increased, so have the expectations of renters. Residents at The Townes at SouthPark have access to an app to make service requests and receive local promotions and other community service introductions.
Luxury BTR tenants are busy professionals who crave — and can afford —high-end service. And it’s a growing segment of the rental market. Three years ago, out of the 35,000 units RKW Residential manages nationally, 5% were BTR luxury townhomes. Today, BTR luxury townhomes make up 13% of RKW’s portfolio. The property type took off first in places like Hilton Head, South Carolina.
“BTR has doubled in our portfolio over the last two years,” Williams says. “The misconception is luxury BTR renters are empty-nesters. It’s up-and-coming families, young couples and people who want to have a dog before they have kids and value the space and luxury service.”
Where do builders and developers see opportunities in BTR?
Emma Littlejohn, president of Emma + Co., an urban development and residential design consultant, says BTR is strong across the Sunbelt because of a lack of inventory. While many talk about the lack of affordable housing, Littlejohn said the reality is there’s little inventory at all price points.
“These high-end locations like SouthPark and Ballantyne are ripe for a highend rental,” Littlejohn says. “People want new, and they can’t get in new houses, and they like the flexibility of renting. In the right locations, single family, for-rent is a phenomenal business model because it offers brand-new luxury. No one wants to renovate.”
Townhome renters tend to stay longer and be a bit less transient than apartment renters, says Andy Lucas, a developer with Beauxwright, a Charlotte residential developer. Townhome renters tend to be more graduated in maturity and career experience.
Not all BTR projects climb to the rental heights of the Townes at SouthPark. Beauxwright and others have found strong demand for units priced from $2,500 up to $5,000. In almost all markets, that price is a 10% to 25% premium over the market rate, accurately qualifying for the luxury label.
“From a developer’s perspective, I don’t think that market is terribly deep for $7,000 a month,” Lucas says.
Beauxwright has two BTR townhome projects underway. The first is Cascadia at Highland Creek, a 7-acre development that will include 89 townhomes. Beauxwright partnered with White Point Partners and will have Copper Builders construct the townhomes.
The other Beauxwright project is Bowery West off Wilkinson Boulevard. The 40 rental townhomes there are part of a hybrid development that includes apartments.
While rents aren’t yet set there, Lucas says Bowery townhomes will likely be north of $3,000 a month. The first units are expected to deliver in early 2024.
Beauxwright delivered one of the city’s first BTR projects, Harmon Five Points, just northwest of uptown in the West End. Beauxwright completed that project in 2020 and sold it to Crescent Communities’ BTR platform in 2022. It includes 76 townhomes.
Lucas says Beauxwright is trying to capture a larger market that includes established millennials who want to move out of higher-density apartment living but are stymied by housing costs and higher interest rates. Another deep pool of renters are empty-nesters who want luxury, lock-and-leave housing in Charlotte.
“Historically the rental-home space has been this scattershot aggregation model where maintenance accountability is significantly lower,” Lucas says. “Professional management provides consistency that the market likes.”
Likewise, Bart Hopper of Hopper Communities has made BTR a big part of his development strategy as professionals seek luxury without a mortgage. Hopper is building an identical product to rent that he’s built and sold in recent years in areas such as Enderly Park, South End, North End and FreeMoreWest. Those for-sale townhomes go for up to $600,000 when sold.
Hopper’s current BTR communities include Crossings at NoDa at the intersection of North Tryon Street and Sugar Creek Road, where end units rent for $2,795 a month. Leasing started in early 2023. The 88-unit development is 40% leased.
“We are treating it just like it was built for sale, but with maybe a few more durable finishes on a few things,” Hopper says. “They are very similar in quality with the same floor plans.”
Hopper has started construction on Enderly Towns and plans a third for-rent project near the Eastland Yards development site off Central Avenue.
For the Eastland-area project, the property is within a federally designated Opportunity Zone. To maximize the tax benefits of developing in such a zone, Hopper says it makes sense to deliver a for-rent project that he can hold ownership of for the duration specified in the Opportunity Zone program.
Other developers say, given strong price appreciation of homes in Charlotte over the past three years, they feel confident about holding ownership of their townhome developments rather than selling the units upon completion.
All say financing a for-rent project is no more challenging that gathering financing on for-sale projects. And municipal approval processes are the same.
In many BTR single-family projects, homes are platted as a group, prohibiting the sale of any single unit to a new buyer. Townhome developers are more likely to individually plat each townhome such that units can be sold to single buyers in the future. All of the developers interviewed have individually platted their current and past projects.
“I would describe us as investors who expect to hold long term but are opportunistic sellers,” Lucas says.
Laura Williams-Tracy is a Charlotte-based freelance writer who can be reached at email@example.com.