NEW YORK, May 15(IFR) - American Homes 4 Rent's
REO-to-rental trade this week achieved the unexpectedly tight
pricing that may herald a new era of funding for a sector long
dependent on bank loans.
Despite the real estate securitization woes that sparked the
global financial crisis, investors piled into AH4R's new deal -
indicating that those concerns are starting to wane.
That is welcome news for companies like AH4R that have
amassed huge inventories of foreclosed homes, renovated them for
rental - and now want to monetize their investment by selling
bonds backed by rental payments on those homes.
AH4R's deal is just the third ever in the nascent
single-family rental (SFR) securitization market, but a slew of
other deals - including perhaps a multi-borrower trade - is
already in the works.
And the fact that AH4R printed the Triple A tranche of its
deal at Libor plus 100bp bodes well for a sector that did not
exist until last year's inaugural trade from Invitation Homes
(IH), owned by private equity giant Blackstone.
"If these deals can come at 100 over, a lot of big SFR
players that have been financing in the bank market will start
to look at the bond market, especially if the velocity of deals
picks up," one senior banker not involved in the trade told IFR.
Perhaps most surprising of all is that investors are
clamouring to buy securitizations of the same houses that, when
they first went underwater, sparked the last global meltdown.
All six tranches of the AH4R trade tightened by 10-15bp in
the secondary market after pricing on Tuesday.
Colony American Homes followed Invitation Homes in April
with the second SFR deal. The latest success in the new sector
has already sparked talk of loads more deals, and sources say
Invitation Homes will be back to market within a month.
Not everyone, however, is convinced about the long-term
viability of this new asset class.
"One deal is not enough to tell us about the longevity of
the market," said Eric Thompson, head of CMBS ratings at Kroll
"But ... providing spreads remain attractive and the deals
continue to perform well, the short-term outlook is positive."
So far, at least, AH4R's trade has performed better than
well. And it remains appealing to the buyside even after the
tight pricing on the Triple A - which came a full 15bp inside
"There are not a lot of products in this maturity offering
this type of spread," said Gary Greenberg, an investor at Payden
He cited as an example the L+80bp pricing on the Triple A
tranche of CGBAM 2014-HD, a CMBS deal backed by the Hudson Hotel
in New York and the Delano in Miami Beach.
That was 20bp tighter than AH4R's top-rated slice.
"We've now got three established players," Greenberg said.
"People are assessing how big this market can grow."
Goldman Sachs (structuring), JP Morgan and Wells Fargo were
bookrunners on the AH4R deal.
Meanwhile Deutsche Bank, which structured the Invitation
Homes deal, is in the driver's seat for an SFR trade from
American Residential Properties Inc, which said this week it is
looking to print at least a US$300m trade.
"Pretty soon, we will have seen several deals come in close
proximity," said one banker who asked not to be named.
"Investors are looking at this as an asset class, not a
Bankers make some of their highest fees on subordinated
tranches of debt, and they have been cheered by the strong
demand for this first wave of SFR transactions.
While it was perhaps no surprise that AH4R's Triple A
tranche attracted around US$1bn in demand with about 30
investors participating, according to one source not directly
involved, the sub pieces were also heard to have all sold out.
That demand allowed AH4R to price the BB+ rated Class F
piece at L+325bp - 35bp inside guidance, yet some 25bp wide of
the lower rated CMBS hotel trade.
But while initial indications are positive, the sector
carries some degree of significant headline risk.
Invitation Homes has already been in the news over a lawsuit
in California concerning mold in one of its properties.
Normally, mold in a single property would hardly merit
consideration in a securitization deal - but the fact that it
has gained media traction points to the sensitive nature of the
"The problem is, the sector is still new," said one senior
Wall Street banker. "There is still no information on how these
are going to perform over time."
The next step for the asset class - multi-borrower deals -
is another matter altogether.
Those trades would securitize loans on multiple properties
owned by multiple managers, all bundled together in one bond -
an even newer and untested product in a new and untested asset
class that is not yet one year old.
"How do you ensure the quality of the property management?"
asked Michelle Patterson, Kroll's head of RMBS ratings.
(Reporting by Natalie Harrison and Joy Wiltermuth; Editing by