Income streams and property values from a pool of 1,623 single-family rental properties across 13 states will provide collateral for Amherst Residential (AMSR) 2023-SFR2. The transaction, which is expected to close on July 28, will raise $498.97 million.
Amherst Residential acquires, renovates, leases and manages single-family rental homes in the U.S.
According to DBRS Morningstar, AMSR 2023-SFR2's initial aggregate principal balance is approximately $498.9 million. The certificates represent a beneficial ownership in an approximately five-year, fixed-rate, interest-only loan.
The rental properties in the pool are distributed across 13 states and 34 metropolitan statistical areas (MSAs). Many of these MSAs experienced dramatic home-price index declines in the 2008 financial crisis. As measured by broker price opinion (BPO) value, 68% of the portfolio is concentrated in three states: Florida (42.5%), Georgia (15.4%) and North Carolina (10.1%), DBRS said.
The transaction's sponsor is ALTO 5 Holdings, the seller is Goldman Sachs Mortgage Company, and the servicer is Midland Loan Services, a division of PNC Bank. The borrower is ALTO Asset Company 5, and the equity owner is ALTO Equity Owner 5. The borrower and the equity owner are indirect subsidiaries of the loan sponsor.
The transaction's multiple-property loan is a potential credit strength, as those types of loans benefit from cash flow volatility because excess cash flow from one property can augment the cash flow of another to meet the deal's debt service requirements, said Moody's Investor Service. The loan also benefits from the pooling of equity from each underlying property.
Another credit-positive aspect is an equity pledge. Moody's said the borrower's direct parent has pledged 100% of its direct ownership interests in the borrower as additional security for the loan. This is in addition to the borrower's first-mortgage lien on the properties.
However, Moody's also said the loan doesn't benefit from amortization and is highly leveraged. Due to the high leverage, the borrower has less equity in the rental properties and less incentive to maintain or create value, and in stress scenarios may choose to divert resources to other properties with lower leverage, the agency said.
The average BPO value of the properties is $310,543, compared to
The properties are managed by Main Street Renewal, an indirect wholly-owned subsidiary of Amherst Residential. DBRS Morningstar considers Amherst to be an acceptable single-family rental aggregator and manager.
AMSR 2023-SFR2 comprises nine classes of notes, the last of which, G, is unrated by DBRS and Moody's. The Class G notes will initially be retained by the sponsor for risk-retention purposes.
The notes will be issued from a multi-tier debt service coverage ratio and a payment-in-kind feature for class E-1, class E-2 and class F. This feature is similar to what Moody's has observed in other recent large loan single-family rental transactions.
DBRS has provisionally assigned AAA to the class A notes, AA to class B, A to classes C and D, BBB to classes E-1 and E-2, and BB to classes F-1 and F-2. Moody's has provisionally assigned Aaa to the class A notes, Aa3 to the class B notes, A3 to the class C notes, and Baa3 to the class D notes.
DBRS said its AAA rating on the class A notes reflects 67.7% of credit enhancement provided by subordinated notes in the pool. The AA, A, A, BBB, BBB, BB and BB ratings reflect 54.5%, 49.8%, 43.7%, 33.8%, 27.5%, 23.0% and 17.7% of credit enhancement, respectively, it said.
