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CRE Finance World, Winter 2014

Although rising tuition costs have certainly contributed to today’s student debt level, stagnant — or in the case of recent years — declining household income also has been a factor. Between 2007 and 2013, tuition for private non-profit four-year and public four-year schools rose by 15% and 28%, respectively. During this period, median overall household income fell by 8%. For recent grads (i.e., age 25 to 34) the drop in income over the same period was almost 9%. Although it is arguable that the higher debt burden is manageable (70% of borrowers have balances less than $25,000 and only 3.7% of borrowers have balances greater than $100,000); the existence of the debt has led more potential owners of homes to remain reluctant to take out a mortgage or unable to save enough for a down payment. Figure 4 Student Loan Debt Is the Only Kind of Household Debt that Grew Through the Recession Source: Deutsche Bank, The College Board, Annual Survey of Colleges; NCES, IPEDS; Haver Analytics Increased demand and led to more supply. There are now over 40mm units available for rent in the US, a rise of approximately 1%/year since 2000. The growth has largely bypassed the mobile home industry and smaller multi-family properties. Between the two subsectors, the number of units available for rent has declined by 100k units over the last decade. However, as the pace of foreclosures, short sales, and REO sales continues to moderate, the supply of new rental units for these sources will slow. CRE Finance World Winter 2014 54 Figure 5 Larger Unit MF and SF Homes Have Contributed Almost All the New Rental Stock Since 2000 Source: Deutsche Bank, Census bureau The “Institutionalization” of the SFR Market The distress in the market and reluctance for potential buyers — especially in the younger demographic —, to commit to buying a home has provided a near-perfect backdrop for large institutions to begin buying large tracts of homes nationwide. Blackstone has far and away purchased more than any other firm in terms of both the amount of capital allocated and the number of units. The firm has spent more than $7 billion to buy close to 40k units; the nearest competitor has spent $3.3 billion to buy around 20k units. We estimate that institutional investors have purchased 90k homes around the country over the last year or two at a cost of just over $15 billion with thousands more added every month. Figure 6 Large Institutional Investors Have Been Buying Source: Deutsche Bank, company filings and websites, new reports Home Rental Securitizations Are Born


CRE Finance World, Winter 2014
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