Cashel USA Property Partners plans to purchase up to $500 million in distressed single-family residences in the U.S. to convert into rentals that will be serviced by PropertyAccess, a provider of national property management services for professional investors.
As part of the agreement, PropertyAccess will work closely with Cashel in the assessment and acquisition phase before going on to manage the entire lifecycle of the purchased properties from renovation, maintenance, rental management and future resale.
Cashel USA Property Partners was established to enable Australian capital partners the opportunity to invest in the single-family home foreclosure and REO property market within the U.S.
“There is a new asset class emerging in the U.S., the single-family rental (SFR)," said Paul Hayman, CEO at PropertyAccess. "The amount of interest it’s garnering from the capital markets coupled with the unprecedented volume of potential inventory is creating an economic opportunity that hasn’t been available before in residential rental housing,”
Cashel's announcement comes as the Federal Housing Finance Administration (FHFA) begins to formalize a national platform for an REO to rental scheme. The FHFA recently began the pre-qualification process for investors interested in acquiring and renting REO properties from the FHFA.
The REO-to-rental scheme has also garnered lots of attention among securitization industry professionals keen to get a foothold on a large portfolio of distressed properties that have not otherwise been available via the private market. A concern in the industry has been how a bulk purchase of these loans would be serviced down the line.
As part of the pre-qualification process for the FHFA scheme, investors must prove they have the financial means to bid on and hold properties long-term and the property management expertise to ensure properties are well maintained throughout the life of the investment.
For investors who are seeking to optimize returns of their large SFR portfolios, PropertyAccess and its partners offer a single source solution to manage every stage of the property lifecycle including.
“The national reach of the PropertyAccess network combined with their local presence and breadth of services were critical factors in our decision to partner with them,” said Stuart Morton, a managing director at Cashel. “Based in Australia and wanting to invest a significant amount of capital into the US distressed housing market presented a number of challenges. By working with ProperytAccess, the vast majority of these challenges can be overcome and compliance with our strict risk management requirements can be achieved.”
Another concern among investors has been whether the program could generate the equity yield levels that would peak securitization investor interest.
At a teleconference on Tuesday hosted by SNR Denton on U.S. housing policy, panelists said that the FHFA will have to determine how to handle REOs and market pricing and how much of a discount it will give to make the program attractive. However, the new initiative still faces some legal impediment, not the least of which is that some neighborhoods don't allow for rentals of single-family properties,
Nonetheless, the panelists noted that "there is a lot of pent up desire and capital out there that would like to participate."
Morton from Cashel said that its entrance to the REO rental space allows its investor to benefit from a "once-in-a-lifetime opportunity to buy houses at yields not previously seen in this asset class." The company will open a new office in Dallas, TX in the coming months with plans to extend this investment opportunity more broadly, including investors in Asia, the U.S. and the U.K.
"Cashel’s strategy of purchasing high yielding property well below replacement costs and holding for five to seven years as the housing market recovers provides an excellent opportunity for private capital to enter this space and help stabilize neighborhoods,” Morton said.
In January this year, Carrington Holding Co. announced an agreement with certain investment funds managed by Oaktree Capital Management to fund the purchase of up to $450 million in distressed single-family homes on a national basis.
Carrington manages the homes as rental properties to meet market demand for rental units.