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Silver Bay Realty prepping $312M rental securitization

Here comes another one

In another sign that it’s a “landlord’s world,” Silver Bay Realty is preparing to bring a $312.67 million single-family rental securitization to market soon. This will mark the sixth REO-to-rental securitization since Invitation Homes launched the first one in October 2013.

The offering, referred to as SBY 2014-1, is backed by a single loan secured by a first priority of mortgages in a pool of 3,089 single-family rental properties.

Morningstar was the first of the ratings agencies to issue a presale report on the Silver Bay offering and awarded $147.75 million in AAA ratings to the class A tranche.

Additionally, Morningstar awarded $37.68 million in AA+ ratings to the class B tranche.

According to Morningstar, the offered certificates represent a beneficial ownership in a two-year floating-rate loan, extendable to a total of five years with an initial aggregate principal balance of $312,667,000.

Morningstar cites several factors as positive credit model drivers for the securitization:

  • Actual gross rents are close to market rents
  • All properties were leased as of the property cut-off date
  • Higher expected renewal rates compared to multifamily rental properties
  • Low total loan-to-value of 65%

One drawback of REO-to-rental securitizations is vacancy rates. Fluctuating vacancy rates have already affected a $1 billion rental securitization from Invitation Homes. Earlier this month, Morningstar reported that the properties’ cash-flow vacancy rate rose from 5.4% in April to 7% in May, an increase of nearly 30%.

By property count, the month-end vacancy rate as of May 31 was 7.3%, up from 5.5% as of April 30. That’s an increase of nearly 33%.

Single-family rentals have come under fire lately from the national housing activist group Right to the City Alliance, which recently published a report entitled Rise of the Corporate Landlord: The Institutionalization of the Single Family Rental Market and its impact on Renters.

The report, which is critical of the rise of REO-to-rental and single-family rentals, says the proliferation of such rental properties have “proven disastrous for many low-income communities – with rents skyrocketing and corporate, absentee landlords proliferating in urban areas across America.”

One of the concerns raised by the Right to the City Alliance’s report was the rising cost of rent in single-family homes, but the average monthly rent payment for a home in the Silver Bay pool is $1,139, which is lower than all the other SFR securitizations’ average rent.

The top five states in the Silver Bay pool of houses are Arizona (34.7%), Georgia (22.8%), Florida (22.1%), Nevada (7.2%), and Texas (6.4%).

The average cost basis per property post-rehabilitation is $132,642 and the average current BPO value is $155,722. The average age of the properties is approximately 24 years old and the majority of the properties have three or more bedrooms (97.4%).

As with the other REO-to-rental securitizations, Morningstar cited limited performance history as a potential concern for investors. 

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