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Single-family rental homes have become more attractive due to, 'institutional capital and professional management': Arbor Realty Trust Chairman and CEO

Arbor Realty Trust Chairman and CEO Ivan Kaufman joined Yahoo Finance Live to discuss Arbor Realty Trust's recent earnings report.

Video Transcript

ADAM SHAPIRO: I want to talk about real estate. We're going to do that with Arbor Realty Trust. Want to invite into the stream right now our next guest. And he is Ivan Kaufman, Arbor Realty Trust chairman and CEO. I just want to read from your earnings report out for the first quarter in which you reported net income for the quarter of $69.5 million, $0.55 per diluted common share, compared to a net loss of $59.3 million or $0.54 per diluted common share. Why the turnaround? Congrats, by the way.

IVAN KAUFMAN: Listen, it's been an unbelievable run for us here at Arbor Realty Trust. I mean, this is the 10th year in a row that we've raised our dividend with four consecutive dividend increases. We're just in a great space. We're a multifamily lender. We're very active in the single family rental space. And those segments of the economy are just ripping and roaring. And fueled by low interest rates and an imbalance of supply and demand and an attractive investment class, we're just in the right place at the right time.

SEANA SMITH: Ivan, you mentioned the single family rental sector certainly has been a bright spot. It's been attracting institutional investors. Why do you think that's such an attractive asset class right now?

IVAN KAUFMAN: So that's been a mom and pop asset class for the last 20 or 30 years. And always since the Great Recession, institutions start to get really interested in that space. What nobody realizes-- and it's something I say to many people and they look at me cross-eyed-- is that there are more people living in single family rental homes and multi-family homes, so it's a bigger market, a bigger space. And with institutional capital coming and professional management coming to the space, it's just becoming more and more attractive. And now, with COVID and people wanting to rent homes and have space, people just want to have space, and they want to have homes. And it's affordable. And it's a great option to an apartment building and/or buying a home.

ADAM SHAPIRO: You provide loan origination and servicing for multifamily dwellings. Do you see contractors looking to build more multifamily? Or is it going to go more single family because of what we're witnessing right now in the real estate market and the rush for people to buy single family homes?

IVAN KAUFMAN: So clearly, there's a huge surge to buy homes. And therefore, you're going to see a lot of homes being built, of course, if we can get lumber under control. And multifamily starts is still continuing. That's still a very, very strong market. Not quite as strong as it's been in the last five or seven years. But I think there'll be a little bit more demand on the single family side. But multifamily is still a great space, still a lot of development. And the projects that are being delivered are being leased up a little bit slower than they were in the past. But they're still being leased up, and there's a lot of demand. So I think they're both great segments to be in.

SEANA SMITH: Ivan, last year, we saw people rushing to buy homes. Yet the prices didn't really reflect that. We started to see prices appreciate quite a bit recently. Have we reached a peak, do you think? Or do we still have a ways to go on that?

IVAN KAUFMAN: Well, you have a little bit of a problem. You have an imbalance of supply and demand. And we've seen a record run-up in home prices, probably the greatest month over month appreciation that we've seen since prior to the Great Recession. I think you're going to still continue to see an imbalance. You're going to see too many people looking to buy homes, not enough homes for sale. You'll still see some level of appreciation. And a lot has to do with interest rates. If interest rates remain low, it's still affordable. Interest rates will grow a little bit higher, then the affordability index gets out of whack. But I think it's a strong sector. There'll be appreciation, but not to the same level. And until new homes are delivered, you still have quite an imbalanced supply versus demand.

ADAM SHAPIRO: Is there any reason for people who want to get into the housing market, but right now, are priced out to be optimistic that in the next couple of years, prices would come down? Or since what we're witnessing is people getting loans who can afford the payments regardless of where we're headed, the prices aren't coming down any time soon.

IVAN KAUFMAN: I don't think prices are coming down anytime soon. A lot has to do with interest rates. And that's why there's a very big push in the single family rental market. I think when people can't buy, they get priced out. What they're going to do is they're going to rent. So that's a great alternative, a great option. And until new homes are being delivered, which is a little bit slow right now, especially with the dislocation in labor and deliveries and lumber, you're going to see a little bit of a slow move to new homes coming to market. But when that picks up, maybe that'll resume the proper balance of supply and demand.

SEANA SMITH: And Ivan, talking about that going forward here, I guess, we have the economies reopening now. More and more people are venturing out. Are you changing your strategy at all as a result of this?

IVAN KAUFMAN: Listen, I think one of the problems everybody's having who's in an active market is we really have a labor shortage. A lot of people aren't returning to work quite as quickly as we'd like to see. It's hard to hire people. I think it'll take till September, where you see a really more normalized people coming back to work.

But for us at Arbor, our biggest issue is a little bit of a labor shortage. We can't fill those positions. People are slow to go back to work. We're being flexible in terms of remote working and trying to have flexible schedules to try and maximize the labor situation. But I'm looking forward to September when most of the people do come back to work, and a lot of people go off the payrolls. A lot of people who are dealing with, you know, childcare and school and things of that nature, those issues go away. And we'll go back more towards a normalized work environment and labor situation.

ADAM SHAPIRO: All right, Ivan Kaufman, Arbor Realty Trust chairman and CEO, thank you for joining us here on Yahoo Finance Live.