The new development Sancerra Communities plans to build along Wildomar’s southern boundary won’t be your typical townhome development. They’re being built as rentals, rather than as a traditional for-sale product, pioneering the build-for-rent single-family living concept in California.

Development of 163 townhomes already had been approved before the Newport Beach-based developer closed escrow on the 26-acre parcel.

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The project is just the first, and the most advanced, of five build-to-rent projects Sancerra is pursuing. We asked Sancerra managing partner Marcus Cook to explain why Sancerra is pursuing this novel concept in a state known for its booming sales.

Q: Are you the only build-for-rent going on in California?

A: There are a lot of other groups that are kind of putting their toe in the water. This is really a merging of the (apartment and for-sale housing) sectors, if you will. It’s not new, but at scale and as institutionalized as it is, is certainly new. And so, I think what I’ve found is there are a lot of groups out there that are talking about build-for-rent, but they don’t quite understand it yet.

Marcus Cook, managing partners of Sancerra Communities, at their offices in Newport Beach, CA, on Wednesday, December 29, 2021. (Photo by Jeff Gritchen, Orange County Register/SCNG)

Q: Sancerra has said it’s found the right recipe for build-to-rent in California. What’s in the secret sauce?

A: I think it’s important to understand that build to rent doesn’t work everywhere. In many cases, there’s a lack of understanding of what really constitutes an ideal build-for-rent location.

Does it have access to employment? What are the school districts like? What do we have in the proximate retail amenities? What are the existing adjacencies? Many of the same kind of investment criteria that’s used to evaluate an apartment project is used to evaluate build-for-rent.

Without that understanding of what constitutes a good, long-term investment, you’re liable to have some groups look at build-to-rent in places where it perhaps doesn’t quite make sense.

Q: Are you building these projects to hold or to sell?

A: Our desire is to hold these assets long-term. We have a real belief in the demographics that are driving consumer demand for this product. We don’t think that it’s a short-lived phenomenon.

Q: What are the demographics that make this attractive?

A: The Great Recession really kind of put millennials at a financial disadvantage. Many of them found themselves facing foreclosure or bankruptcy or student loans they couldn’t pay. They have really been struggling as a generation to achieve the same level of financial Independence as previous generations.

The result of that has been that they’ve been slow to form households. What we’re starting to see now is an unwinding of that, such that millennials are beginning to form households. They’re starting to get married, they’re starting to have the financial independence to move out from living with their parents. Combine that with being at a life stage where they start to have children, and you need more space than a studio apartment in urban locations.

More bedrooms, bigger laundry rooms, preferably a yard. It doesn’t have to be a big yard, but just something to be able to have a barbecue and a table and chairs in the backyard.

There’s been an unbelievable amount of pet adoption taking place during the pandemic, and these (residents) need a place for a pet. Unfortunately, traditional apartments — while many of them have shifted to allowing for pets — it’s just not super well-suited.

So, whether it’s a townhome with a little patio or whether it’s a detached home with a small private backyard or private side yard, we think these demographics are really well aligned for this product.

Q: Will your townhomes in Wildomar meet the definition of attached, single-family homes?

A: This is single-family living. You have attached, direct-access, side-by-side two-car garages, just like a traditional house.

Q: Is the approval process, the entitlement process a major deterrent for build-for-rent in California?

A: I think it’s, candidly, the biggest. All development in California is difficult. Some with good reason and some could probably use reform. But, the environmental process, the development process, the permitting process in general in California is lengthy, it’s expensive, it’s complicated and litigious.

There are many development companies that choose not to do business in California because they can’t get comfortable with the entitlement risk.

Q: Why not just acquire existing single-family homes to rent?

A: There are significant efficiencies associated with managing, leasing and maintenance of a single collection of units as opposed to adding individual units spread out.

The single-family rental REITs have done an exceptional job in developing the efficiencies where they can for sites that are spread out. But a whole other level of efficiency exists if they’re all built in the same location.

The other thing is you can craft a user experience so much more effectively when you control an entire community of homes as opposed to buying homes on a one-off basis where you have no idea what your neighbors are like — whether they play loud music or put their cars ups on blocks.

There’s also little-to-no opportunity to offer community amenities that you find in projects like ours. So overall, we think it’s a better experience for the end-user and a better experience for the investor.

Q: Do you think build-to-rent is going to expand in California in the future?

A: I think it will. I think it’s a product that serves an important customer segment. Build-for-rent is an important tool for addressing the housing shortage in California. We think it aligns well with the demographics that we’ve seen and expect to continue to see.

About Sancerra Communities

Based: Newport Beach

Founded: Jan. 12, 2021

Industry: Real estate development and investment

Principals: Marcus Cook and Jim Chahine

Projects under development: 5

Project locations: Wildomar, Murrieta, San Joaquin County, Vallejo and Mammoth Lakes.

Total units planned: 713, including 163 in Wildomar

Wildomar groundbreaking: Late 2022

About Marcus Cook

Age: 51

Job title: managing partner at Sancerra Communities

Lives in: Newport Beach

Past experience: 28 years of real estate experience, previously as senior vice president and head of Acquisitions at Irvine Company and currently a board member on the executive committee at USC Lusk Center for Real Estate.

Education: Master of Real Estate Development from USC and a bachelor’s of science degree in Business Administration from the University of North Carolina at Chapel Hill.

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