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Investments

American Residential taps Deutsche Bank for REO-to-rental securitization

Will be German bank’s second REO-to-rental marketing deal

for rent

[Update 1: Further clarifies American Residential is not an affiliate of other parties.]

American Residential Properties Inc. has tapped Deutsche Bank AG (DB) to arrange a $300 million bond sale backed by house rental payments.

The deal would be the second such REO-to-rental bond sale for the German banking giant.

“We have recently retained Deutsche Bank to serve as our lead banker to assist in structuring and negotiating a securitization transaction,” said Stephen Schmitz, chairman and CEO of American Residential Properties, said in the company’s fourth quarter and fiscal 2013 report on Wednesday. “Raising capital through a securitization is expected to provide in excess of $300 million in medium-term debt, reduce our cost of capital and enable us to continue funding our acquisition strategy in 2014."

American Residential is a real estate investment trust, which owned 6,073 single-family homes in Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Nevada, North Carolina, Ohio, South Carolina, Tennessee and Texas for a total investment of approximately $802 million.

As of December 31, 2013, approximately 75% of the portfolio was leased.

New REO-to-rental deal

Other players in the space have long been active, and some already brought deals similar to American Residential to market.

For example, Blackstone Group (BX) spent the past two years building an expansive portfolio of single-family rental homes via subsidiary, Invitation Homes, spending $7.5 billion to acquire 40,000 houses. Blackstone then packaged rental income from single-family homes into a pass-through security using Deutsche Bank. Moody's Investors Service(MCO) provided a credit analysis for Invitation Homes 2013-SFR1, an REO-to-Rental securitization, awarding $278.7 million in triple-A ratings.

Colony American Homes likewise has a deal in the works.

"We had an outstanding year in 2013 and made tremendous progress in expanding our robust platform for long-term success in the single-family rental market," Schmitz said. "We increased the number of homes in our portfolio by more than 240% during the year, which required us to refine and enhance the processes, systems and procedures needed to effectively manage these assets.”

The company restored 3,500 homes, signed leases on more than 2,300 homes and renewed more than 700 existing leases in 2013.

Renters occupy about 14 million single-family homes worth as much as $2.8 trillion. Demand for leased housing remains string as fewer Americans are able to qualify for a mortgage under the new Qualified Mortgage rule, and as potential buyers face obstacles like rising interest rate and a growing affordability gap.

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