Progress Residential, a single-family rental company founded by former Goldman Sachs partner Donald Mullen, Jr., is the next in line to tap the securitization market.
The company, which has acquired over 8000 homes in 20 markets across the U.S., plans to sell $473 million of bonds backed by a single loan that is in turn secured by the rental payments on a pool of 3,142 single family homes.
This is the same structure used in the nine deals to hit the market to date, starting with the Blackstone Group’s Invitation Homes in November 2013.
The loan backing Progress Residential 2014-SFR is floating rate and pays interest only for an initial two-year period, after which it can be renewed for three 12-month periods, for a total of five years.
The properties are distributed across 10 states and 27 metropolitan statistical areas, or MSAs, in the United States; however 61.0% of the portfolio is located in three states, Arizona (26.9%), Texas (21.4%), and Georgia (13.7%). These state have suffered some of the more dramatic house price declines in the recent housing downturn, according to Morningstar, which has assigned preliminary ratings to the deal.
Kroll Bond Ratings is also rating the deal, with the exception of the class F notes.
Deutsche Bank, which provided Progress Residential with a $400 million line of credit last year, is the lead manager of the securitization.
The capital structure features a total of six classes of notes. The class A notes, rated AAA’/ AAA, has credit enhancement at 49.1%; the class B notes rated AA+’/ AA’, has credit enhancement at 39.6%; the class C notes, rated A+’/ A-’, have credit enhancement at 31.5%; the class D notes rated BBB+’/ BBB+’ have credit enhancement at 24.7%; and the class E notes rated BBB’/ BBB-’ have credit enhancement at 13.1%.
Morningstar rated the class F notes with credit enhancement at 5%, BB+’.
According to Morningstar, the average age of the properties is approximately 14 years and 99.8% of the properties have three or more bedrooms. The average cost basis per property post- rehabilitation is $180,957 and the average current broker price opinion (BPO) value is $204,483.
Approximately 76.4% of the current pool is located within home owner associations (HOA), in line with Progress’ overall portfolio. “Market observers have claimed that homes located within HOAs could be viewed as a positive for several reasons- better collateral protection and better regulated to preserve appeal and condition of property,” Morningstar stated in its presale. “However, in Morningstar’s view, concentration of properties within HOA’s exposes the transaction to another unknown- i.e. the efficiencies with which the
Gross rent yields for the current pool is 8.1%, which is in line with previous single-family rental transactions, according to the Morningstar presale report.