A likely weathervane for how single-family rentals are being affected by the pandemic, the $826.2 million securitization by FirstKey Homes is ultimately secured by income stemming from home rentals located in current COVID-19 hotspots including Florida and Arizona.
The FirstKey Homes 2021-SFR1 deal is collateralized by a five-year, fixed-rate $826.2 million that requires interest-only payments and is secured by the mortgages on 3,847 income-producing single-family homes. It is the first single-family rental securitization by FKH, a SFR owner and operator under the umbrella of Cerberus Capital Management, an investment firm with more than $45 billion under management.
Bank of America and Merrill Lynch are co-leads on the offering.
Kroll Bond Rating Agency’s presale report notes that the three largest state exposures, representing 57.3% of the portfolio, comprise Florida (24.9%), North Carolina (20.5%) and Arizona (11.9%). All three have seen COVID-19-related infection and mortality rates rise significantly in recent weeks.
In its report the rating agency describes temporary rent relief that FKH has provided to renters and other factors potentially impacting cash flow and its rating analysis, and that “resulted in lower KBRA recoveries than what could have been achieved had the COVID-19 pandemic not occurred.”
KBRA also notes that the securitization of single-borrower loans secured by SFR properties is a relatively new asset class in the U.S., and that the business model for large-scale institutional ownership and management of such properties is currently being tested for the first time through a recessionary period. A total of 48 SFR securitizations rated by KBRA have been issued since 2013, including the current transaction, and so far none have experienced delinquencies and 24 have repaid in full prior to maturity.
Nevertheless, “It remains to be seen what the overall impact of the COVID-19 pandemic will have on home prices and rental rates,” the report says.
KBRA points out that the FKH 2020-SFR1 loan has an loan-to-value of 90%, significantly higher than the average leverage of 77.5% for 18 comparable transactions. Those transactions were also structured as interest-only loans, which KBRA describes as riskier because unlike amortizing loans they do not deleverage throughout the life of the loan.
Created in 2015, FKH has significant experience in the SFR arena, indirectly owning and managing a portfolio of more than 24,600 homes across 23 markets and 15 states.
