Silver Bay priced its inaugural single-family rental securitization. The company said in a press release that it sold approximately $312 million of certificates with a blended effective interest rate of LIBOR plus 1.92%. it did did not indicate how each tranche priced.
Interactive Data reported early this week that price talk for the $147 million, triple-A rated, class A notes was at 100 basis points over one month Libor. The capital structure also includes $37.6 million of class B notes, rated double-A plus; $32 million class C notes , rated single-A; $30.42 of class D notes, rated triple-B plus; $17 million of class E notes, rated triple-B; and $46 million of class E notes, rated triple-B/ double-B plus.
The most recent single-family rental home transaction to price was Colony American Homes’ securitization which priced in June. That deal, Colony American Home 2014-2 had a duration-weighted blended interest rate of LIBOR plus 1.64%.
Silver Bay's deal is backed by by 3,089 properties. It is structured similarly to the previous five deals to come to market from Blackstone's Invitation Homes, Colony American Homes and American Homes 4 Rent.
Similar to the last three issues, from 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 secured 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. By comparison, the first two single family rental securitization deals were backed by a fixed-rate loan.
However, the pool of loans backign Silver Bay Realty 2014-1 is slightly different than the previous transactions, according to Morningstar and Kroll Bond Ratings.
The rental properties are located in previously hard-hit areas that experienced significant increases 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 securitizations, and 15% lower than the transaction with the next highest valuation (AH4R 2014-SFR1), according a presale report published by Kroll Bond Ratings.
These lower property values translate into a significantly lower weighted average monthly rent of $1,187, 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, saying that short-term leases expose the borrower to potential declining market rents. It is also concerned that capital expenditures and marketing costs could increase as a result of high tenant turnover.
The average age of the properties is 24 years and the average size is 1,703 square feet; 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 swimming pools. 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.