A third securitization of single-family rental properties by Colony American Finance is also the smallest to date for the REIT-affiliated lender.
Colony American Finance 2016-2 is backed by 71 multi-borrower loans totaling $187.9 million; the loans are secured by mortgages of 2,717 rental units of single-family, 2-4 unit and multi-family properties.
This is the second multi-borrower securitization by the Irvine, Calif.-based CAF in 2016, and only the seventh in the emerging asset class since April 2015 (there have been 28 traditional single-borrower SFR securitizations, according to Kroll Bond Rating Agency).
The pool includes a Class A series of notes sized at $129.6 million, carrying 31% subordination and an expected ‘AAA’ structured finance rating from Kroll, Moody's Investor's Service and Morningstar.
Kroll also rated the Class B notes ($15 million) at ‘AA-’; the Class C notes ($11.7 million) at ‘A-’ and the Class D notes ($12.7 million) at ‘BBB-’. Morningstar assigned an ‘AA+’ to B notes; an ‘A+’ to the C notes and a ‘BBB+’ to the D notes.
Morningstar also assigned ratings ranging from ‘BBB-’ to ‘B’ for the Class E, F and G notes totaling $13.8 million; Kroll chose not to rate them. Neither agency rated the series of income notes sized at $4.9 million.
Moody's only issued ratings for the Class A notes.
Colony American Finance (CAF) Lender originated 69 of the loans in the new pool, with the other two purchased by a CAF affiliate from FirstKey Lending (not a party to the deal). The pool is smaller than Colony American’s previous two transactions that included 3,301 (CAF 2016-1) and 3,488 properties (CAF 2015-1).
The bulk of the loans are with investor groups with multiple affiliate borrowings in the pool. Those include Rex Residential, Rex Residential Ventures and Rex Residential Ventures II; and Camillo III and Camillo IV.
The loans in the pool, which has a trust balance of $187.9 million, are loans either of five-year (56 loans) or 10 years (15 loans) with a coupon of 6%. The principal balances range from $500,000 to $15.5 million. The weighted average loan-to-value of homes in the portfolio is 69.1%, among the highest of six prior multi-borrower SFR transactions to date, according to Kroll (including two of Colony American’s two previous securitizations, CAF 2016-1 at 66.6% and CAF 2015-1 at 64.4%.
The properties are older homes with an average age of 46 years (slightly older than properties in six prior multi-borrower SFR securitizations) and have average 1,360 square feet. Nearly 70% of the pool are single-family homes, with the remainder a mix of town homes (4.9%), condos (1.6%), duplexes (9.5%), triplexes (4.5%), quad-plexes (3.5%) and multifamily (6.1%).
The predominant locations are Birmingham, Ala. (13.1%), Houston (13%) and Dallas (11.3%).
All of the loans are first-lien, fixed-rate contracts with 60 including an amortizing balloon payment and 38 of them listed as non-recourse. Most of the balloon notes amortize on a 30-year schedule.
Kroll applied a 17.6% haircut on the appraised rental value stated from the issuer. Kroll applied at 1.15% debt-service coverage ratio, compared to the issuer’s 1.37x rate, for the underlying loans – each higher than the DSC applied to CAF 2016-1.
These are much lower than other previous fixed-rate single-borrower SFR transactions issued since January 2015, which had debt-service coverage between 1.63x and 1.98x (issuer-based) – but Kroll states that is somewhat skewed due to three of those deals made interest-only payments.
As of September, Colony Finance had surpassed $2 billion in loan originations to about 1,300 borrowers. CAF is affiliated with real estate investment trust Colony American Homes. In January, Colony American Homes merged with Starwood Waypoint Homes, and now has a market cap of $2.5 billion, according to Kroll.
Colony Finance’s new deal follows its first securitization of the year in May, which was a $247.7 million asset-backed transaction, which at the time was just the fifth-ever securitization in the fledgling asset-class of single-family home investor loans.
The borrower base in the pool is a mix of larger affiliated groups and sponsors, from “mom-and-pop” borrowers to builder Legend Homes that that has a built-to-rent subsidiary that has participated in other single-borrower transactions.