Since Invitation Homes, a subsidiary of Blackstone Group, launched the first single-family rental securitization in November 2013, there have been 26 other deals with issuance totaling $13.81 billion, according to Morningstar’s Single-Family Rental Update for December 2015 issued this week.
Only three of those 27 single-family rental securitizations have been multiborrower transactions—defined as deals that contain many loans made to smaller investors and usually backed by five or more properties. The rest have been single-borrower deals, which consist of a single loan to a large institutional investor.
There are approximately 15.2 million single-family rental homes in the U.S., accounting for about 35 percent of all rentals in the country (43.3 million). Only 2 percent of single-family rental homes are owned by institutional investors, according to the Urban Institute. With the institutional investor share in the SFR market shrinking, the growth of the market ultimately depends on the issuance of more multiborrower securitizations and the financing of smaller investors, according to Morningstar.
“As institutional acquisition has slowed as housing prices stabilize, Morningstar does not expect single-borrower issuance to be the driver of growth in the single-family rental market in the near term,” Morningstar said in its report. “Most market participants expect the growth of the single-family rental market to come from multiborrower single-family rentals.”
Multiborrower issuance has been slow for a variety of reasons, primarily due to a lack of borrower awareness and administrative challenges in underwriting the loans, Morningstar said. The three multiborrower transactions out of the 27 were issued by B2R Finance, L.P., FirstKey Lending LLC, and Colony American Finance, LLC.
Overall, Morningstar said the performance of all the single-family rental transactions have outperformed the company’s original forecast.
“[C]ash flow coverage of debt service remains robust and delinquency rates low; vacancy and retention rates also remain in line with Morningstar’s forecast,” the report stated. “One area to keep an eye on is elevated capital expenditures, which can affect performance on several fronts, including lower net cash flow, a less effective debt yield trigger, and less protection from an interest-rate cap.”