CREFW-Fall2015

26 / 48

CRE Finance World Autumn 2015
24
Exhibit 5
Quarterly Rental and Homeowner Vacancy Rates for the United States,
1995–2014
Source: U.S. Census Bureau
According to Morgan Stanley, large buyers have spent about $68
billion amassing about 528,000 SFR homes. Given that $12 billion
of securities tied to approximately 90,000 homes have so far been
issued, there are still plenty of SFR properties available in the
market to be securitized. Additionally, historical performances of
the prior SFR offerings have been quite assuring. Granted the very
first SFR securitization had initially sparked concerns as collected
rents declined by 7.6% within 3 months of the cut-off date, with
a stabilized vacancy rate (8%) higher than the issuer’s prediction
(6%). However, these vacancy numbers were still well within
the rating agencies’ stressed parameters and more importantly,
despite a reduction in rental cash flows received, payments were
nonetheless made in full to bondholders. As the market develops,
both delinquency rates and vacancy rates have been generally low
and stable. According to Morningstar, the month-end delinquency
rates of May 2015 ranged between 0.2-1.3% with American
Rental Properties 2014-SFR1 deal being an anomaly with 2.3%
and the vacancy rates among SFR securitizations remaining
relatively flat month-over-month at an average lower than 5%
despite a general trend of a rising number of lease expirations.
Where is SFR market heading?
Although institutional investors are likely to remain involved in the
SFR market for quite some time in the face of rising interest rates,
climbing home prices, high student debt, tight credit conditions
and depressed incomes that limit opportunities for would-be
homebuyers, the SFR market is expected to eventually shift from
larger-scale investors to smaller, individual investors.
With housing prices having recovered nearly their pre-crisis peaks,
these institutional investors will want to cash out and realize
their profits by liquidating their portfolios rather than holding
properties and associated market risks on their balance sheets.
Both Invitation Homes and Starwood Waypoint Residential Trust
plan to sell about 5% of their SFR portfolios every year. Moreover,
although millennials are expected to rent for the next few years,
they will eventually want to become homeowners as they form
families and become financially more stable, and may even be
forced to buy houses if rents outpace housing prices. Additionally,
access to credit is set to increase for retail investors looking to
purchase SFR properties. Private equity firms have already begun,
or are seriously considering, offering so-called landlord loans and
rent-to-own programs. The Blackstone Group, Colony Capital and
Cerberus Capital Management are providing landlord loans to
small and midsize investors buying single-family homes. Over the
last year, subsidiaries and affiliates of all three private equity firms
have reportedly lent about $1.5 billion collectively where most of
these loans range from $500,000 to $50 million in size, are two to
five years in length, have interest rates of 5-6% and are backed by
mortgages on the properties and sometimes the rental payments
on the homes. Blackstone is also considering whether to offer
rent-to-own programs or future financing options for tenants who
will eventually become homeowners.
These new lending platforms are generating another exciting
securitization opportunity as these firms are gearing up to bundle
those loans into bonds. Indeed, the first landlord loan securitization
is expected to hit the market in the next few weeks. Given little
competition these firms face with the only other significant SFR
lenders being Fannie Mae and Freddie Mac, which limits their
financings to true mom-and-pop investors, and hard-money lenders,
whose loans tend to be for short periods of time and carry higher
than normal interest rates, demand for landlord loans is expected
to grow fast.
Single-Family Rental Securitization: Where Are We and Where Will We Be?