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CoreVest's next single-family rental deal backed by older, smaller homes

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CoreVest American Finance’s next offering of rental bonds is backed by homes that are older and smaller than any of its previous transactions, according to Kroll Bond Rating Agency.

The $236.8 million CAF 2018-1 is collateralized by 117 loans secured by mortgages on 3,068 rental units in 2,517 single-family, two-to-four family and multifamily properties. The portfolio consists primarily of homes with three or more bedrooms, a weighted square footage of 1,288 and a weighted average age of 59 years.

By comparison, the weighted average age of properties in the sponsor’s five prior deals was 47 years. But the portfolio backing CoreVest’s latest deal looks even older compared with the broader universe of 26 single-family rental deals rated by Kroll since 2015, which has a weighted average age of just 23 years.

The weighted average square footage of properties backing CoreVest’s latest deal s the second smallest when compared to the nine prior multiborrower rental transactions. Those transactions included properties with average sizes that ranged from 1,229 square feet to 1,559 square feet and averaged 1,390 square feet. It stacks up even less favorably to the broader universe of 26 prior Kroll-rated single-borrower deals, which had a weighted average square feet of 1,830.

“The older age and smaller size of the homes in this portfolio has the potential to negatively impact the ability to sell the collateral (or the price obtained in any sale) following an event of a default, since older, smaller homes may be less desirable to potential purchasers, all else being equal,” Kroll stated in its presale report.

The properties underlying CoreVest’s new deal are located across 29 states. The largest three states represent 33% of the pool balance: New Jersey (16.8%), Florida (8.8%) and Texas (7.5%). The top three Core Based Statistical Area exposures represent 26.8% of the pool balance: New York-Newark-Jersey City (15.1%), Chicago (6.9%) and Indianapolis-Carmel-Anderson (4.8%).

This is CoreVest’s sixth rental securitization overall and brings the total principal balance to $1.2 billion. To date, none of the 371 previously securitized loans has experienced a loss, though 14 loans ($37.2 million, 4.1% of issuance balance) were transferred to special servicing at least once. Of these 14 loans, six ($8.3 million, 0.8%) are currently in foreclosure, three ($5.6 million, 0.5%) are 90-plus days delinquent and one ($1.1 million, 0.1%) was repurchased by CoreVest at par, without any losses to the trust.

Kroll expects to assign an AAA rating to the senior tranche of notes to be issued, which benefits from 35.375% credit enhancement. There are also three subordinate tranches with ratings ranging from AA to BBB- and three unrated tranches that CoreVest will retain in order to comply with risk retention rules.

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RMBS Securitization Fortress Investment Group