B2R Finance, a company controlled by the Blackstone Group that lends to landlords, has priced its first rental securitization.
The $230 million transaction, called B2R Mortgage Trust 2015-1, is also the first securitization of loans to multiple landlords. Previous deals in this asset class have all been backed by a single loan that is backed in turn by thousands of single-family rentals.
The senior tranche of 4.33-year, class A-1 notes, rated triple-A by Fitch Ratings and Morningstar, pays 115 basis points over interpolated swaps, for a yield of 2.5%; the 8.65-year, class A-2 notes, also rated AAA, pay 145 basis points over interpolated swaps, or 3.34%.
The risks to multi-borrower deals are different from those of single-borrower deals. There’s an inherent benefit to the diversity of borrowers as well as the greater geographic diversity of properties behind multi-borrower deals. Also, many of the borrowers being financed have longer operating histories than the large institutional investors that have been accumulating repossessed homes and converting them to rentals.
At the same time, it can be a challenge to get a multitude of borrowers to report financial information in a consistent format that rating agencies and investors are comfortable with.
Comparisons are also made difficult by the way different deals are structured. For example, last week, Invitation Homes, which is also controlled by Blackstone, priced a rental securitization backed by a single loan. The senior tranche of that deal, IH 2015-SFR2, has a tenor of just two years and pays 135 basis points over one-month Libor.
At the junior level, the 9.5-year double-A-minus class B notes issued by B2R Finance pay 165 basis points over interpolated swaps; the 9.6-year, single-A-minus class C notes pay 195 basis points and the 9.8-year, triple-B rated, class D notes pay 250 basis points.
At the bottom of the capital stack, the 10-year, class E notes, rated BBB- by Morningstar, priced at 350 basis points over interpolated swaps. Fitch does not rate this class.
The transaction is backed by 144 mortgage loans secured by single-family residential properties, two- to-four-unit properties, condominium properties, townhomes, multifamily properties and mixed-use properties.
At an industry conference in February, Ryan Stark, a managing director at Deutsche Bank, predicted that there will be $10 billion to $12 billion of rental securitizations this year, at least $1 billion of them multi-borrower deals. To date, single-family rental bond issuance is $2.7 billion vs. $6.6 billion for all of 2014.
There’s already a second multi-borrower deal in the works. FirstKey Lending, which is majority-owned by funds managed by Cerberus Capital Management, is currently marketing a $241 million multi-borrower, single-family rental bond rated by Kroll Bond Ratings Agency and Morningstar. FirstKey Lending's 2015-SFR1 is backed by 16 loans made to 10 borrowers, a much smaller pool than the 144 loans securitized by the B2R transaction. The loans range in size from $2.9 million to $51.3 million.
Price talk on the $159 million triple-A rated, class A notes is at the 120 basis point area over interpolated swaps, according to an Interactive Data report.
There may well be a third deal on the way. Jade Rahmani, a research analyst at Keefe, Bruyette & Woods, wrote in a March 27 report that Colony American Homes’ single-family rental lending unit, Colony American Finance has closed over $500 million of loans to date to small to middle market single-family rental operators. He expects the firm to tap the securitization market via a multi-borrower structure.