Rental-Home Bond Issues May Reach $20 Billion a Year
Wall Street may sell more than $20 billion a year of bonds backed by rental homes as investors become comfortable buying securities tied to loans to small landlords, according to Ryan Stark, a director who runs mortgage finance at Deutsche Bank.
"The numbers could be fairly staggering," Stark said at a Structured Finance Industry Group conference in Las Vegas. "This could be a $15 billion or $20 billion-plus-a-year kind of an asset class. Certainly if those smaller shops get more volume, you're going to see even more in growth in that area."
Institutional investors, led by companies such as Blackstone's Invitation Homes and American Homes 4 Rent, have bought as many as 200,000 homes in the last two years, Stark said. They are taking advantage of home prices that fell as much as a third from the 2006 peak and rising demand for rental homes among about 8 million former owners who lost property to foreclosure since 2007.
The big opportunity for debt is among smaller landlords who own most of the 14 million single-family homes occupied by renters, he said.
Deutsche Bank and Blackstone sold the first bonds backed by rental homes in November, a $479 million issue that was "about five times oversubscribed," Stark said. American Homes 4 Rent, an Agoura Hills, Calif.-based landlord with more than 21,000 homes, and Colony American Homes Inc., a Scottsdale, Arizona-based landlord with more than 15,000 homes, have announced plans to issue similar securities this year.
Lenders owned by Blackstone, Colony and Cerberus Capital Management are offering smaller landlords debt they plan to package into securities as soon as this year, Stark said. Attorneys and ratings companies are figuring out how to structure the pools of loans to make them appealing to investors concerned about an asset class with a limited history, the challenges of managing dissimilar properties and the risks of collecting rent.
"Over the next 60 to 90 days it will be worked out," said Steve Blevit, an attorney with Sidley Austin in Los Angeles, who worked on the Deutsche Bank-Blackstone deal and other bonds.