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CRE Finance World, Winter 2013

CRE Finance Roundtable: Outlook for 2013 Brian P. Lancaster: and leasing agreements in place, it’s certainly possible to securitize Talk about the single-family home to rent REO market. That has the revenue stream. been an asset class that has been discussed in a number of very well attended conferences. Do you feel that it is the next income Brian P. Lancaster: producing asset class? My sense is that, given what the Fed is doing, driving rates down, investors are pursuing a variety of strategies: going down in Sam Chandan: credit; adding leverage to high-quality assets like the mortgage I think it is not. There is a divide in assessments of the viability of REITS; or looking out for esoteric assets. We’ve seen some very the single-family home to rent market. On the multi-family side, we interesting off-the-run type deals lately. It seems like investor see a generally cautious approach. The potential for us to realize appetite would be there if you can get the credit enhancements economies of scale is limited. Gains will follow from buying assets correct and the rating agencies on board. at very deep and sometimes artificial discounts, even as compared to where we see the market today. So why do we have this in the David Nass: first place? Why is this an issue on the table? Over the last five That’s right. Clearly, financial institutions are exploring this. They years, so many different policy tools have been brought to bear are providing warehouse lines for sophisticated clients that focus in trying to put a floor under the housing downturn. One of the on the REO to rental space. The logical next step, to the extent suggestions that came out of the Federal Reserve last January that it is ratable and structured the right way, is to see a capital was that if there is a strong rental demand out there, then perhaps market execution as a financing alternative rather than simply a we can make these homes available for rent out of inventories of financing on the balance sheet of a bank. foreclosed properties being held by Fannie Mae and Freddie Mac. That would take some of the edge off of the increases in rent Brian P. Lancaster: growth that are constraining affordability and would also see some On the topic of different types of securitizations in the market, of this housing inventory absorbed. The pilot program undertaken in the year ahead, what do you see in terms of the CMBS market by the FHFA and Fannie Mae was not without its bidders. I am overall. Where do you see conduit and large loan issuance? skeptical, but a large number of very credible investors are pursuing Will we see a lot of floaters or mezzanine securitizations? opportunities in this business, so the jury is still out. David Nass: Brian P. Lancaster: Hopefully, issuance in 2013 will evolve with more esoteric David, Sam mentioned the pilot REO to rental loan securitization. securitizations both by structure as well as by asset class. I think There has also been a lot of discussion in the press and at we will continue to see liquidating trusts, floating rate securitizations, conferences about financing these types of programs. What is your CRE CLOs and some form of CRE CDOs as well. We’ve seen some perspective? Could loans from these programs end up in a CMBS of these types of structures issued in 2012 and they have been deal or would they have to be done as one-off securitization? successful transactions. David Nass: Brian P. Lancaster: Personally, I think that there is an opportunity to see that product How were those deals done? Do you think there will be more of in a potential stand-alone securitization scenario, not as an asset those in the coming months? class or property type within a conduit. The demand generators for REO to rental are clear. Sam mentioned the tremendous REO David Nass: supply, but there will also be further restructurings. The necessity for rentership is there especially given today’s tighter lending UBS issued a mezz securitization three weeks ago. It was over subscribed and extremely successful. With sound structure and standards. You can also point to proven success models for rent- to-own product types. The own-to-rent model has worked for cars, reasonable leverage, there are capital markets solutions for traditional balance sheet financings. Capital market solutions provide for efficient DVDs and storage space in the web, so why couldn’t it work for the home owner market? As long as the securitization is structured financing alternatives and, if properly structured, the product will be absorbed. We saw successful issuance in 2012; my guess is you’ll properly, with adequate service agreements, maintenance agreements see more of it in 2013. CRE Finance World Winter 2013 10


CRE Finance World, Winter 2013
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