BGO Banks on SFR With 1Sharpe Capital Strategic Partnership

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BGO has formed a strategic partnership with 1Sharpe Capital aimed at investing in build-to-rent, single-family home communities across the U.S., the company announced Wednesday.

The transaction involved BGO acquiring an ownership stake in 1Sharpe Capital’s single-family rental (SFR) business after first entering the space early in the COVID-19 pandemic. The partnership with the Oakland, Calif.-based investor will target acquisitions of connected SFR properties in secular growth markets within areas that provide strong school districts and employment centers.

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“We made a decision over three years ago that we were going to extend our housing play into single-family rental,” Chris Niehaus, managing partner and head of the U.S. business for BGO, told Commercial Observer. “We felt it was very important that we find an operator that we could make an investment with and keep the operator and the capital together.”

Niehaus noted that BGO initially struck an agreement with 1Sharpe “several years ago,” but decided to delay deployment of the initiative when the Federal Reserve brought interest rates down to near zero at the onset of the COVID-19 pandemic, which drove up asset prices on SFR. He said with interest rates now “more normalized” the partnership can gain more value and returns from the SFR investments in addition to capitalizing on the higher borrowing costs driving more renters into the market. 

The BGO-1Sharpe partnership’s first SFR acquisition that closed in late 2023 for an undisclosed purchase price is a newly built 64-home community called Cyrene at Estrella in Goodyear, Ariz., west of Phoenix. Niehaus said there is a large pipeline of SFR opportunities the partnership is exploring in Sun Belt and Western U.S. markets.

With interest rates remaining elevated after 12 Fed rate hikes the last two years, Niehaus said acquisitions will be tackled without leverage, but eventually debt financing will be pursued when the capital market conditions improve. 

“A lot of investors that invested in [SFR] a couple of years ago aren’t doing so well, because they bought at a higher price and they borrowed usually with floating-rate loans, so their cost of capital has gone up a lot and it’s really squeezing their returns,” Niehaus said. “If you can buy and hold long term on an unleveraged basis, you’re still getting very good unleveraged returns and you can always add leverage later.”

Gregor Watson, co-founder of 1Sharpe, said the BGO partnership will help “create sustainable, connected communities in high-growth markets.”

Niehaus said he hopes over the long term to scale the platform to levels similar to other companies that have capitalized on the more than $4 trillion U.S. SFR market in recent years. BGO currently has around $40 billion of assets under management in the U.S. with 75 percent allocated toward the housing and industrial CRE sectors.

“What we like about housing is people have to live somewhere,” Niehaus said. “You don’t have to be in an office anymore but you have to live somewhere, so there is a constant demand that is not going to go away.”

Andrew Coen can be reached at acoen@commercialobserver.com