As a testament to the growing popularity of the single-family rental asset class, total issuance for 25 single-family securitizations in two years have amounted to $13.08 billion backed by loans on nearly 100,000 homes, according to an announcement from Morningstar Credit Ratings on Wednesday.
Since the first securitization in October 2013, when Invitation Homes brought a $479.1 million deal to the market backed by rental payments on approximately 3,200 single-family homes in five states, an additional 24 deals have come to the market totaling more than $12.5 billion.
While no single-family securitizations came to market in July or August of this year—Morningstar attributes the slowdown to issuers’ redirection of focus from property acquisition to property management—the agency said there are two bright spots in the SFR market as of late.
One of the bright spots is the merger of two giants in the single-family rental market, Starwood Waypoint Residential Trust and Colony American Homes, which was announced on September 21. The merged company is expected to own and manage more than 30,000 single-family homes nationwide and have an asset value of about $7.7 billion.
The other bright spot, according to Morningstar, is a new variation on SFRs that have dominated the market lately: multiborrower securitizations. Three of the 25 single-family securitizations have been of the multiborrower variety. Multiborrower securitizations “create access to the vast majority of single-family rental properties which are owned by smaller investors and have so far been left out of the securitization process,” according to Morningstar.
Invitations Homes, which issued the first single-family rental securitization in October 2013, has been the biggest issuer of SFR securitizations to date. Based in Dallas, Texas, Invitation Homes has completed seven of the 25 total SFR securitization deals with $5.17 billion in total issuance, securing more than 31,000 properties in the seven deals combined. Invitation Homes is a subsidiary of Blackstone Group, which owns more than 45,000 houses in markets including Atlanta, Las Vegas, Los Angeles, Sacramento, Phoenix, and throughout Florida.
“Institutional buyers—companies buying at least 10 properties a year—are relatively small players in the housing market, and their activity has been shrinking.”
—Morningstar Credit Ratings
American Homes 4 Rent has completed five SFR securitzation deals with $2.54 billion in total issuance, securing nearly 22,000 properties. Colony American Homes and Progress Residential have both completed three SFR securitization deals each.
“Critics argue that large, institutional landlords hurt first-time homebuyers, but Morningstar disagrees,” the report stated. “Institutional buyers—companies buying at least 10 properties a year—are relatively small players in the housing market, and their activity has been shrinking.”
The recently-announced merger between Starwood Waypoint and Colony American is predicted to save between $40 million and $50 million in annual costs. The merger, which must be approved by Starwood shareholders, is expected to close in Q1 2016. The combined company’s total of more than 30,000 homes with $7.7 billion in assets will make it the third-largest landlord in the country, according to the number of homes owned, according to Morningstar.
Investors with small portfolios own and manage the majority of single-family rental homes. Multiborrower securitizations offer the pool of smaller investors the opportunity to obtain financing for their portfolios, and as such, this subclass of securitizations will be a likely engine for growth of the SFR market, Morningstar said.
“Compared with single-borrower single-family rental securitizations, multiborrower deals present an additional set of concerns related to the diversity of the borrowers, their operational procedures, and their properties,” Morningstar wrote. “Having evaluated the credit risk for the first three deals in the multiborrower area, Morningstar believes that issuers are on track to mitigate these concerns. The continued ability of issuers and credit rating agencies to adequately address these risks is crucial to the success of these multiborrower deals and the near-term vigor of the institutional single-family rental market.”