A Tale Of Two Prices: Retail Versus Investor Value
Thibault Adrien is the CEO and Founder of Lafayette Real Estate, an asset manager specializing in single family rentals and build to rent.
When it comes to real estate prices, there are two distinct lenses through which they can be viewed: retail value and investor value. Understanding the difference is critical for investors in today's market where headlines often blur the lines between the two.
For example, a recent article from The Wall Street Journal noted that for publicly traded single-family rental REITs, the investor valuation of housing is currently lower than the retail valuation of those properties, drawing the conclusion that investors believe prices will drop.
However, I think the piece misses an important distinction in that investor valuation is not a speculative bet on future retail values. While the divergence between the two is fair, its explanation lies elsewhere: Investor valuations and retail prices differ because they are driven by distinct fundamentals and considerations.
Since the rise of this asset class since 2008, the cap rates investors, like my own, have been willing to accept have usually implied a lower value than what a household would be willing to pay. A notable exception was a highly unusual period following Covid, during which surging inflation—fueled by fiscal stimulus—coexisted with historically low interest rates.
That environment pushed some investors to be very aggressive, but this unsustainable window closed abruptly in the summer of 2022, triggering a swift retreat by some of our peers. Many remain on the sidelines, seemingly waiting for those conditions to return. (Spoiler: I don't think they will.)
Investor Value: A Different Perspective
Investor value reflects the amount an investor is willing to pay relative to the income the asset is expected to produce (the yield). As an investor in this space myself, my company, Lafayette Real Estate, views retail home prices as a form of downside protection—a foundational layer of intrinsic value—but not a primary driver of our investment thesis.
The projected yield analysis relies on the underlying fundamentals such as supply and demand dynamics, population growth, affordability of rents compared to household income, wage growth, expense inflation and interest rate expectations, which shape long-term returns. Taking a view on these big trends, in a specific location, as well as a more subjective view on the risks/quality of the asset itself, allows investors to then take a shot at projecting each revenue and expense line item for the next 10 years and price an asset accordingly.
Retail Value: Historical Performance And Current Trends
The retail value of an investment property is the price a household pays when buying a dwelling. Prices, from a retail perspective, have historically outperformed inflation, offering investors a reliable store of value.
Of course, neither investors nor economists can predict the future, and in the short term, an increase in homes for sale could put downward pressure on prices in a few markets. Yet overall, the U.S. continues to be plagued by a meaningful housing shortage, estimated to be in the millions of homes. The lock-in effect continues to be relevant with 56% of mortgages below 4% and inventory levels, while having risen since 2022, still remain well below pre-pandemic levels.
Critics often cite current high prices as unsustainable, but I think the reality is that these values are just a reflection of the market's supply and demand dynamics.
When Investors And Retail Buyers Co-Exist In The Same Market
Everybody knows that when yields go up, asset prices go down, right? That might be true for treasuries, but for homes? Forget it. In summer 2022, interest rates rose, supply dropped and home prices went up. In real estate, supply and demand still rule.
Investors aren't driving prices—they're reacting to them. Institutional investors (owning 1,000-plus homes) make up just 1% of transactions. But they do offer support: When prices dip, yields rise and investors step in. This helps cushion the market, making a 2008-style crash less likely. Builders know this and value their ties with SFR investors, especially when retail demand cools.
Still, investors provide pricing support: If prices go down, yields go up—and investors step in. This dynamic makes a global financial crisis-style scenario, where home prices plummet, which is hard to envision today. Homebuilders also understand this dynamic and work to maintain strong relationships with real estate investors, whom they see as valuable partners when the retail market softens.
Where We Stand Today As Investors
The fundamentals of rental housing remain compelling, particularly in markets with strong demographic growth and persistent housing shortages. While we are seeing elevated deliveries in some areas, the structural shortage continues—and the recent, significant decline in new rental starts (with multifamily starts down 27% and build-to-rent starts down 60% year-over-year in 2024, according to a John Burns Real Estate Consulting report) will only deepen it. We are confident that projects launched now in dynamic markets will be delivered into favorable supply-demand conditions over the coming years.
Disciplined institutional investors don't fixate on the short-term fluctuations of retail home prices or volatile tariff announcements. Instead, they focus on the long-term fundamentals that drive occupancy and portfolio performance.
By focusing on well-located properties with strong demand and sound rental economics, you can build a portfolio designed to perform across market cycles, regardless of where retail prices happen to stand, so long as you stay in control of your development and operating costs and deliver an excellent resident experience.
Investing in new build-to-rent communities of homes doesn't just capitalize on these trends—it also contributes to the solution. Addressing the housing shortage also means building quality rental options in markets where many households have been priced out or are unwilling to take on the burdens of homeownership.
In any case, we have got millions of homes to build to fix the housing crisis, and our mission should be to become part of the solution. So let's get to work, one home at a time.
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