Thibault Adrien, CEO of Single-Family Rental Owner Lafayette: 5 Questions

When the French-born Thibault Adrien launched single-family rental (SFR) owner and operator Lafayette Real Estate in 2011 — named after French nobleman the Marquis de Lafayette, a protege of George Washington during the American Revolution — he wasn’t sure how much legs the idea had.

The Global Financial Crisis had hit a few years earlier and there was an opportunity to buy houses for cheap — along with a demand for renters — but he wasn’t sure just how long those metrics would make sense.

“For a while, we didn’t know if it was a trade — meaning we are going to buy, wait for the market to stabilize, and sell — or if it was a long-term business,” Adrien said.

However, all that has changed. Lafayette took property management in-house in 2014, realizing that tenants tend to stay put longer when you increase the quality of services. Besides, the move made Lafayette Real Estate a much more viable business.

“The mom-and-pop property managers were not really incentivized if tenants stay or not,” he said. “When there is a churn, when people leave, they get to put a new tenant in place, so that means new leasing commissions, which is a good revenue generator for them.”

Aside from taking property management in-house with its Brandywine Homes USA company, Lafayette also started moving into the build-to-rent (BTR) space with its Marquis Homes brand.

Now the New York-based company is very much in it for the long haul, with $1 billion in assets under management and 5,000 SFR units (including those under construction) in its portfolio.

Commercial Observer sat down with Adrien during the MIPIM global real estate event in Cannes, France, to discuss the state of the SFR industry, working with European investors in the space, and the challenges facing the industry.

This interview has been edited for clarity and length.

Commercial Observer: What was the SFR market like in 2024, and what’s the outlook for 2025?

Thibaut Adrien: 2024 was back to being like a normal year, like pre-COVID trends, meaning stable rent growth at around 3 and 4 percent.

It had been like that forever before COVID. What I was telling my property management team is, “Don’t worry, that’s how things were like back in 2019, 2018 — you had just been used to booming markets before that.” We don’t have the same issues that the multifamily asset class has. Multifamily has seen more risks from pockets of oversupply in some markets. 

The outlook is we’re going to continue to see 3 and 4 percent rent growth in the next couple of years, and I think the build-for-rent new supply is likely to drop because the problems that multifamily developers face are the same those that the SFR space faces. It’s hard for us to scale right now because the interest rates make the numbers a little bit more challenging.

The SFR market isn’t really as big in Europe as it is in the States. Does that make it difficult to get European investors to put money in the industry?

There was this big realization last year among European private investors that they should get more exposure to the U.S., and, due to the political turmoil in Europe, people were very bullish when Trump was elected. Now people are a lot more cautious with all the volatility and headlines. 

You have to find investors first that are interested in global diversification, and it’s a challenge. The U.S. single-family asset class is the largest real estate class in the world. It’s the most liquid real estate class in the world. There are strong supply and demand fundamentals, so you can make that pitch. And we’ve had those discussions for 10 years, so it’s not impossible at all. 

That’s how we started initially. All my investors from when I started Lafayette in 2011 were European investors, so you had to find adventurers: people ready to cross the Atlantic to invest here in the U.S. And, to some extent, back then it was sometimes almost easier to speak to European investors because they were less traumatized by what had happened with the subprime crisis. They had maybe a cold-blooded view on the asset class, where American investors were a lot more focused on the headline risks and the trauma of the subprime crisis.

Can you talk about the decision to get into the build-for-rent space?

For us, it was very hard to buy existing homes on the multiple listing service because we are not as competitive as the retail buyers. We still buy on the MLS, but, in order to buy, our conversion rate is around 2 to 3 percent. So we have to submit 100 offers to buy two or three homes. So it’s not a very successful strategy.

We decided to do it ourselves: Let’s try to buy some land, let’s hire a team to rezone the land, do the entitlements, get the permits, and build the homes for us. So that’s more successful. We have 1,500 lots under contract right now that we need to build on because there’s not enough rental housing in the U.S.

We pitch the local officials to rezone and get the permits in place. We explain why it’s good for the communities to have some rental housing because there are not enough housing options for their constituents. It’s not always easy, because there’s a stigma against renters. So we have to explain that these renters are great families that are pretty stable. They stay in the home for four years. We pay real estate taxes, so that’s additional revenue for the communities. We take care of our communities very, very well because we own them. We have to explain all of that, and it’s not always easy. But we managed to get some permits and entitlements from these cities.

More states like New York are pushing to put more limits on the SFR market. Is there any concern about that for the future?

We are not in New York, so I can’t speak for New York, but I am not concerned. We are on top of it, we follow what’s going on, but I can’t be concerned by counterproductive policies being put in place. I can’t control what those politicians may or may not do. What I know is that the country needs more rental housing, there is a shortage of homes in the U.S., the homes are not affordable enough, and the affordability issue is going to be solved by more supply. That’s the only way. So, if some local regulators end up making decisions that are very counterproductive for their constituents, that’s too bad, but it’s not something I can be concerned about.

I don’t think it’s going to happen because I think they will make the right choices. In all the states that we are in, every attempt at limiting the new supply of rental housing has failed.

There has been a lot of criticism of institutional investment in the SFR market. Can you explain why you think it’s the solution to dealing with the undersupply of affordable housing?

There is a need for more supply, and the reason why is prices are so high. It’s really supply, demand and interest rates. The MLS is very dry right now. People are not selling their homes because they’ve locked in a 3 percent mortgage rate when they purchased their house a few years ago. If they sell, they have to put in place a new mortgage and they’re going to pay like twice the interest rates. The cost of borrowing is going to double, so that creates a lack of supply. And the demand is not going away because demand is just demographics. So that creates the affordability issues.

In order for prices to be a bit more stable, you need to provide more options to families in their neighborhoods where they can live. If you provide more supply, prices are going to be more stable and going to be more affordable.  

As I said earlier, we have to submit like 100 offers to buy two or three homes. And the two or three homes we buy, we buy them below the offer price. So we are not pushing up prices when we buy. So 90 percent of the time the winning bidder is going to be the retail buyer. So the retail buyer is kicking our ass.

Then, on the property management side, we add value as institutions to the asset class because we are accountable. We talk to you, we talk to regulators, and we have to show that we have to be as perfect as possible in operations —- meeting high-quality standards, including fair housing rules. We have to be super disciplined around those topics. It creates a lot more transparency and a lot more accountability in the market. 

Nicholas Rizzi can be reached at nrizzi@commercialobserver.com.