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Progress Residential's next SFR securitization backed by newer properties

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Progress Residential’s next single-family rental securitization is backed primarily by properties that were acquired in 2017.

That’s in contrast with the sponsor’s previous two transactions, in which a portion of the collateral was seasoned and refinanced from earlier transactions, according to Moody’s Investors Service. The rating agency cites this as a “challenge,” because of the lack of performance history. “Seasoned assets have historical data demonstrating collateral performance in key metrics such as rent growth, vacancy rate, delinquency rate, total revenues and actual expenses compared to newly acquired assets where such data is not available,” the presale report states.

Progress Residential 2018-SFR1 is backed by 2,129 single-family residential rentals distributed across nine states and 18 metropolitan statistical areas, making it more geographically diverse than Progress’ previous transaction, completed in November — a plus in Moody’s view. “Although Progress' portfolio in any given market could constitute a minimal amount of that market, large-scale liquidation of an operator or multiple operators in single market could have a significant impact on final recoveries,” it notes in the report.

Morningstar Credit Ratings notes favorably that approximately 76% of the pool’s properties, by broker price opinion value, are in a homeowners association. It says that this may help to attract quality tenants looking for certain amenities provided by a homeowners association, which generally requires the properties to be maintained to a certain minimum standard.

Approximately 0.5% of the properties by BPO value in the transaction were vacant as of Nov. 30, Morningstar notes.

Progress may release an individual property or properties from the loan by prepaying 105%-120% of the allocated loan amount of the subject property or properties depending on the aggregate amount of the mortgage loan prepaid.

It may also elect to substitute a disqualified property with an eligible property rather than prepaying the loan in the applicable release amount for such property.

The homes are financed with a fixed-rate loan that Progress obtained from a Goldman Sachs; this loan, which pays only interest, and no principal, for its entire five-year term, serves as collateral for the transaction, dubbed Progress Residential 2018-SFR1. Moody’s expects to assign ratings ranging from Aaa to Baa2 to the senior four tranches of notes to be issued. It will not rate the three most subordinate tranches.

Goldman Sachs is the structuring agent; Deutsche Bank Securities, B of A Merrill Lynch and Morgan Stanley are co-lead managers.

As of Dec. 31, Progress Residential owned, through its subsidiaries, in excess of 23,000 single-family residential homes in 15 core markets across nine core states. These homes are located principally in Arizona, Florida, Georgia, Nevada, North Carolina and Texas.

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