NEW YORK, June 12 (IFR) - Deutsche Bank is planning an
REO-to-rental lending business as an add-on to its existing US
commercial mortgage-backed securities (CMBS) conduit platform.
The bank will potentially fund smaller investors who want to
partake in the US housing recovery by buying up foreclosed
single-family homes to rent out, according to two sources with
knowledge of the plans.
The plan is part of a two-year vision for the evolution of
the REO-to-rental business at Deutsche, which has been among the
most aggressive on Wall Street to provide financing to the
The bank has already extended a US$2.1bn lending facility in
the institutional investor space to Blackstone, the largest
asset manager in the industry, as well as a US$100m loan to
asset manager Five Ten Capital.
But it also sees potential in serving the smaller investors
who are buying up single-family homes in specific pockets of the
country on a more limited scale.
Deutsche Bank declined to comment.
The REO-to-rental lending business would require additional
hires to the bank's existing CMBS conduit platform, which is
among the most robust on Wall Street. Lending will likely start
later this year, with securitization as an eventual exit
Deutsche's first priority is getting the first REO-to-rental
securitization off the ground, and it is on record as predicting
that the first deal would appear this year.
The bank is engaging with several ratings agencies on
proposals for transactions.
REO-to-rental lending to smaller investors and mom-and-pop
outfits is viewed as a natural fit with the bank's CMBS conduit
business. Loans would be in the US$10m to US$50m range, and as
an exit strategy, they would eventually be pooled for
Having CMBS conduit machinery already in place is seen as a
competitive advantage over other players recently entering the
business of lending to smaller REO-to-rental investors, such as
private equity firm Cerberus Capital.
"There are many more real-estate investors in the US$20m to
US$30m range than there are Blackstones in the world, and that
market is quite under-served right now," said one securitisation
"Any investment bank with a mature CMBS conduit will be
getting into this."
Investment firms and individual private investors in that
smaller range currently have limited options to procure
financing. The GSEs have a hard cap on the number of investor
properties a borrower can finance. Fannie Mae allows 10 investor
properties, while Freddie Mac allows four.
That would be suitable for a true mom-and-pop investor, but
not helpful to the slightly larger investors managing US$20m to
US$50m in properties.
One alternative may be commercial loans from regional banks,
but those banks have not yet developed the loan product, experts
say, and face the regulatory burden of meeting capital
The first securitizations of rental cashflows from formerly
foreclosed single-family homes may be unrated, but Deutsche Bank
is actively seeking a rating in order to make the new asset
class attractive to bond investors.