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CRE Finance World Autumn 2015
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additional investor protections such as back-up property manager
that would step in and gain control in the event of materially
adverse conditions.
Is SFR securitization market competitive?
While the growth of SFR market is expected to slow as foreclosures
slow and housing prices recover, bottom line can be strengthened
as institutional investors become more focused in particular MSAs
and experienced at managing properties, rental market remains
strong with overall rents increasing, and delinquency and vacancy
rates remain low.
Institutional investors are becoming much more selective in new
portfolio acquisitions and are shifting their focus to managing
their properties, collecting rents and improving operations. For
example, Invitation Homes has recently agreed to sell about
1,300 Atlanta-area residences in order to focus on creating
highly-efficient SFR infrastructure in certain MSAs. Focusing on
particular MSAs will make property management more efficient
and homogenous which is an important factor for many of the
SFR bond investors, as the continuity of net cash flows from
the underlying properties depends heavily on the ability of their
owners to manage large numbers of SFR homes, which are often
geographically dispersed and uniquely constructed, hence cannot
be implemented with a one-size-fits-all approach.
Exhibit 2
Median Asking Rent for Vacant Rent Units, 1995–2014
Source: U.S. Census Bureau
SFR market is not likely to contract any time soon and overall
rents have been and will continue to rise. According to Moody’s
SFR homes make up about 13% of the U.S. housing stock, up
from 9% before the financial crisis. The number of SFR homes
has increased 35% since 2006 to 15.1 million from 11.2 million
and, as of July 2015, single-family rentals comprise 40% of the
rental market which nearly equals multi-family rental share of
42%. As millennials start to form families but are typically unable
or unwilling to buy homes, the rental numbers are expected to go
up. Strong demand for rental homes have translated into rents
increase and the median asking rent has been continuously rising,
as seen in Exhibit 2. Rent growth is expected to accelerate this year
as landlords plan to raise their rents as much as 4% on renewals
and 5.7% for new tenants and will average nearly 3% per annum
through the end of the decade. Combined with lower rental vacancy
rates (Exhibit 3) and lower homeownership rates (Exhibit 4) in
the second quarter of 2015 in comparison to that of 2014, bottom
line is expected to further improve. Exhibit 5 shows that the rental
vacancy rate is at a historic low.
Exhibit 3
Rental Vacancy Rates by Region
Source: U.S. Census Bureau
Exhibit 4
Homeownership Rates by Region
Source: U.S. Census Bureau
Single-Family Rental Securitization: Where Are We and Where Will We Be?