Page 58

CRE Finance World, Winter 2014

Figure 9 Rating Agency Haircuts to the First Home Rental Securitization Were Less Severe than SA Hotel CMBS Source: Deutsche Bank, rating agency presales The Future Will Be Big for this Sector The size of the rental market has obviously grown and should continue to do so; the market will likely also continue to see more institutional buyers. The use of securitization to help finance the large scale purchases that have been made and those that will be made in the future is a natural evolution for a market of this size and one with the growth that it has shown. Considering that almost $20 billion has already been spent by private equity funds and public companies like American Home 4 Rent over the last year or so, securitized loans backed by home rentals totaling in the billions (we expect $5 billion of issuance in ’14) is not out of the question by this time next year. Indeed, barring another recession, we find it CRE Finance World Winter 2014 56 hard to imagine how a relative flood in deals won’t happen in the next year or two. The deals will initially be similar to the IH-2013 deal (one large portfolio loan structures as SASB CMBS) but over the course of the year some multi-borrower transactions could emerge. We expect these deals will have a handful of loans to different sponsors with each balance in the $50-$150 million range. We see a number of benefits for nearly all market participants in this scenario. Most importantly, the transparency that the related reporting packages could offer on the health of the numerous micro-markets across the country would be a boon for economists, investors, policy makers and of course, strategists. The market would also likely become the second-biggest contributor to the growth of securitization markets in the US, trailing only the CMBS market in nominal terms. Bond investors would benefit by having another liquid, stable market to participate in, especially in an environment where valuations across the fixed-income credit universe are at or very close to full valuations. Looking ahead to the coming year, rising mortgage rates and home prices will make homeownership more expensive for individuals at the margin and the buy-rent decision skewed towards rent. This will help keep demand strong and maintain upward pressure on rents. The positive fundamental outlook for the sector will encourage new investors to enter the space and existing ones to continue to grow their portfolios and management platforms. Thank you to contributing authors, Ying Shen, Research Analyst, and Doug Bendt, Research Analyst, Deutsche Bank Securities Inc. Home Rental Securitizations Are Born


CRE Finance World, Winter 2014
To see the actual publication please follow the link above