Silver Bay's inaugural single family rental securitization pipeline will offer $312 million of securities backed backed by 3,089 properties.
The deal follows the same structure set by the previous five deals to come to market issued by Blackstone's Invitation Homes, Colony American Homes and American Homes 4 Rent .
Similar to the last three issues to come to market that include, the Colony American Homes deals and American Homes 4 Rent, Silver Bay Realty 2014-1 is backed by a single floating rate loan (originated by JPMorgan Chase Bank) that is seucred by the issuer's rental portfolio. The floating-rate loan pays only interest for its two-year term and can be extended by 12 months up to three times. The first two deals were backed by a fixed rate loan.
However, the portoflio composition is slightly different than the previous transactions to come to market, according to Morningstar and Kroll Bond Ratings.
The rental properties are located in previously hard-hit areas that experienced significant in housing prices: 79.7% of the portfolio is located in Arizona (34.7%), Georgia (22.8%), and Florida (22.1%). The average cost basis per property post-rehabilitation is $132,642 and the average valuation for the homes is $155,722. This is 30% lower than the average of the previous five rental securitization, and 15% lower than the transaction with the next highest valuation (AH4R 2014-SFR1), according to the KBRA presale report. These lower property values translate into significantly lower weighted average monthly rents of $1,187, which are approximately 29% lower than the average of those in the previous transactions, which ranged from $1,427 to $1,610 per month.
Approximately 31.7% of the properties have lease terms of less than 12 months, 19.1% of the properties have lease terms of 12-18 months, and 49.2% of the properties have lease terms of 18 months or more. Nearly 75.5% of the properties have a remaining term of less than 12 months, with a weighted average remaining lease term of 8.5 months. KBRA cites this as a risk factor. “Short-term leases expose the borrower to potential declining market rents,” the presale report states. “In addition, capital expenditures and marketing costs could increase as a result of high tenant turnover.”
The average age of the properites is 24 years and the average size is 1,703 sf; most of the homes have three or more bedrooms (97.4%). This compares favorably to the somewhat higher average age of three of the five single family rental transactions issued to date, including IH 2014- SFR1 (26 years), CAH 2014-1 (28 years) and IH 2013-SFR1 (30 years). However, KBRA notes in the presale report that these metrics are inferior to those of AH4R 2014-SFR1, which had an average age of 12 years and average size of 2,028 sf.
“Older homes that are of a relatively smaller size may not appeal to as broad a market segment as larger homes, and may not be as marketable in the event of a default,” the presale report states.
Morningstar also noted in its presale report that 323 of the properties have a swimming pool. Previous deals have also included homes with pools however; Silver Bay makes ongoing pool maintenance the responsibility of tenants. In prior SFR transactions, the swimming pool is maintained by the company and was incorporated in the underwritten repairs and maintenance expense.
If the tenants cannot maintain the swimming pools on a regular basis, additional repair and maintenance costs could occur in the Silver Bay transaction. Morningstar addresses this potential risk by adding an additional 10% (20% total) buffer to the Silver Bay underwritten Repair and Maintenance costs.
The capital structure will offer $147 million of class A note that will be rated AAA’/ AAA’; $37.6 million of class B notes, rated AA+’/ AA+’; $32 million class C notes , rated A+’/ A’; $30.42 of class D notes, rated BBB+’/ BBB+; $17 million of class E notes, rated BBB’/ BBB’; and $46 million of class E notes , rated BBB’/BB+’.