Upcoming single-family home rental securitization deals by the real estate investment trusts American Homes 4 Rent, American Residential Properties and Colony American Homes are the catalysts for growth in the space, say analysts at Morgan Stanley.
The deals are slated to come to market early in the first half of 2014. Morgan Stanley analysts explain in a Jan. 6 report that securitzation “boosts portfolio growth potential, lowers cost of capital, and widens the gap between the haves’ and have nots.’”
Access to debt is key to portfolio growth and securitization is expected to be a key funding option for players in the space.
Colony American Homes announced its plan to issue a single family home rental securitization early in 2014 on Nov. 25. American Homes 4 Rent said on Nov. 11 that it intended to issue a securitization deal over the 90 days following its announcement.
Blackstone’s success with Invitation Homes 2013-SFR1, the first securitization of cash flows from single-family rental properties, has opened the floodgates to an estimated $5 billion in issuance for the asset class over 2014, according to Deutsche Bank analysts.
Deutsche Bank was the lead bank on Blackstone's deal, which was structured as a single, floating-rate loan backed by the mortgages on 3,207 rental properties, all of which are managed by American Residential Properties, which is owned by Blackstone.
The first deals of 2014 are expected to be similar in structure to Blackstone’s. Over the course of the year, however, conduit deals pooling the rental cash flows of multiple operators, could also emerge. The deal sizes could range in the $50 million to $150 million size.
Demand for the asset class hasn’t waned and Morgan Stanley expects the remaining distressed housing stock of 4.1 million homes to be more than enough to meet growing demand for rentals. “We estimate that ~$20B of institutional investments have been made since 2011 in the BTR sector, and see $90B of incremental opportunity using fairly conservative assumptions,” said analysts in the report.