Morningstar has issued its presale ratings for a $1 billion single-family rental securitization. The ratings agency awarded $483.37 million in AAA ratings for the largest tranche in the deal.
Morningstar becomes the second agency to grant AAA ratings to the largest section of the securitization from Invitation Homes, titled Invitation Homes 2014-SFR1. Kroll Bond Rating Agency also granted AAA ratings to the largest tranche of the deal.
IH 2014-SFR1 will be collateralized by a $1 billion loan secured by mortgages on 6,537 income-producing single-family homes.
This is Invitation Homes’ second securitization and the fourth of its kind.
The loan backing the securitization will be a non-recourse, first lien, floating rate mortgage loan originated by German American Capital Corporation on the securitization closing date and funded with proceeds of the sale of the certificates.
According to Morningstar’s report, the properties are distributed across ten states and 32 metropolitan statistical areas in the United States. Nearly 70% of the portfolio is concentrated in three states; Florida (32.0%), California (26.8%) and Arizona (10.8%). The average cost basis per property is $159,597 and the average age of the properties is roughly 25 years old. The majority of the properties have three or more bedrooms.
The property manager for the homes is THR Property Management. “Morningstar visited the property manager in Dallas, TX and upon completion of Morningstar’s review, THR was considered to be an acceptable property manager to Morningstar,” the report says.
The servicer for the properties is Midland and the special servicer is Situs.
Morningstar cites higher expected renewal rates when compared to multifamily rental properties as a positive credit model driver.
The agency cites the limited performance history of single-family rental securitizations as a concern. The report also cites the unpredictability of renters as a concern as well. “Traditionally, renters desire the flexibility intrinsic with the short-term nature of a lease,” the report says. “Defaulting on a lease results in a lower financial cost and less credit damage than defaulting on a mortgage, so it may be easier for new tenants to simply walk away. Therefore, finding and retaining creditworthy renters could be costly and difficult to forecast.”
According to Morningstar’s report, 5.1% of the properties were vacant as of the property cut-off date. In the three previous single-family rental securitizations, the vacancy rate was 0.0%.