A single, fixed-rate loan secured by mortgages on more than 2,000 properties will secure the latest single-family rental (SFR) securitization from Progress Residential, a $632.3 million deal.
Single-family rental securitizations combine elements of a mortgage-backed security (RMBS) and a commercial mortgage-backed security (CMBS), because the collateral are residential mortgages, which are typically taken out by real estate investment trusts (REITs), which crosses over into the commercial real estate market.
SFR Investments V REITs is sponsoring the deal, for which Progress Residential is acting as borrower and property manager on the transaction. Midland Loan Services is the servicer and special servicer on the deal, for which Deutsche Bank Securities, Barclays and Goldman Sachs are placement agents, according to Kroll Bond Rating Agency.
Progress Residential, 2022-SFR5, will issue the certificates to investors and repay them through a sequential structure. Investors in the senior classes of the capital structure will receive principal and interest payments sequentially, beginning with class A, until class E2 receives all of its principal and interest. After that classes F through class H will receive payments.
The lower classes will be the first to absorb losses, sequentially, in the capital structure.
KBRA expects to assign ratings of ‘AAA’ to ‘A-’ on the more senior notes, which have priority to receive principal and interest payments; and ‘BBB+’ through ‘BB’ on the relatively subordinate notes, which do get some principal and interest, but are mostly slated to receive principal only, according to KBRA.
Aside from the senior-subordinate capital structure that prioritizes the senior notes for repayment, Kroll notes other elements that shore up confidence in the timely repayment of certificates.
A subsidiary of Pretium Partners, which has about $44.1 billion in assets under management, manages SFR Investments V REIT Trust. Pretium owns a platform primarily dedicated to managing various sponsor affiliates and certain affiliated investment vehicles.
“Progress has the adequate ability, processes and infrastructure to manage the collateral in the transaction,” KBRA said.
There is an important drawback, however, KBRA noted. The collateral underpinning Progress Residential is a single, interest-only loan. The loan requires interest-only payments throughout the loan term, which KBRA believes is riskier than amortizing loans. The latter naturally de-levers over the loan term, and has a lower risk of maturity default. Should an interest-only loan default later in its term, the loan will experience a higher loss, relative to amortizing loans, given its higher outstanding principal balance, KBRA said.
