Progress Residential 2021-SFR4 is making a huge bet on the continued demand for single-family rental properties with a $469 million mortgage-backed securities deal.
The transaction is secured by just one five-year, fixed-rate loan on 1,982 single-family rental (SFR) properties, which was made to Progress Residential Borrower 16, which is literally on the line for the repayment of the notes, according to Moody’s Investors Service.
The underlying collateral on the deal — 1,982 properties — is considered a credit strength, because excess cash flow from one property can support another in case of a shortfall and maintain debt service payments, Moody’s says.
Aside from the borrower’s first-mortgage lien on the properties, Progress Residential Borrower 16’s direct parent entity has pledged all of its direct ownership interests in the properties to the lender as additional security for the loan.
P3-A Single-Family Rental Trust, the transaction sponsor, is an experienced single-family property services company. Moody’s points to its experience as another credit strength. It has been acquiring, renovating, leasing and managing single-family homes across the country since 2013.
However, investors need to be aware of some credit risks, notes Moody’s. The properties backing the loan are located in 13 metro areas in nine states.
“Large-scale liquidation of an operator or multiple operators in a single market could have a significant impact on final recoveries,” according to a Moody’s pre-sale report.
The most senior class of notes, at $190 million, secured a ‘Aaa’ rating from Moody’s, while the $44.4 million B class and $27.1 million C class earned ‘Aa3’ and ‘A3’ ratings, respectively. Moody’s also gave a subordinate D class, with $29.6 million in notes, a ‘Baa3’ rating. The agency did not rate the rest of the notes in the deal.
