Barry Sternlicht, chief executive officer of Starwood Capital Group LLC, said investors still have to prove they can efficiently manage scattered rental houses as they expand in a competitive market.
Buying homes to lease has gotten more difficult after prices soared in the past two years, he said in an interview on Bloomberg Television from the Milken Institute Global Conference in Beverly Hills, Calif. Sternlicht's Starwood Waypoint Residential Trust, based in Greenwich, Conn., controls more than 5,000 rental homes, according to a January presentation to investors.
"It has gotten harder and you have to pick your markets," Sternlicht said. "Certain markets you're shut out of. We focused on Florida and Texas and California and stayed out of some of the wild markets like Phoenix and Las Vegas. Investors got so aggressive in those markets."
Private-equity firms, hedge funds and real estate investment trusts have purchased as many as 200,000 houses during the past two years. They are seeking to profit from rebounding prices and rising demand for rentals among millions of Americans who lost properties to foreclosure or canít qualify for a mortgage.
Capital costs for single-family rental homes aren't higher than for apartments when adjusted for the amount of time people stay in the houses, according to Sternlicht. Apartments turn over faster and families in homes stay about two years, he said.
"Thereís more single-family homes rented in the United States then there are apartments," Sternlicht said in the interview. "Our job will be to prove that it can be done efficiently."
Starwood Waypoint fell 0.3% to $26.97 at 12:15 p.m. Eastern time. The shares have dropped about 5.4% since they started trading on Jan. 22.
The company was spun off from Starwood Property Trust Inc., a commercial-property investment and finance company, following a merger between Waypoint Homes and an affiliate of Starwood Capital Group.