Invitation Homes is planning to bring its third REO-to-rental securitization to market. The securitization, Invitation Homes 2014-SFR2, will be collateralized by a single $720 million loan secured by the mortgages of 3,750 single-family rental properties.
Morningstar has weighed in on the securitization and issued $322.58 million in AAA ratings to the offering.
Additionally, Morningstar awarded $78.79 million in AA ratings and $69.41 million in A ratings.
Of note in the presale report is the vacancy rate of the underlying properties, which stands at 4.4% as of the cutoff date. That’s lower than the vacancy rate in Invitation Homes’ previous SFR securitization in 2014, which was 5.1%, but still far above the vacancy rate of any of the other rental securitizations this year.
Invitation Homes’ two previous REO-to-rental securitizations received positive reports on the vacancy rates of the underlying properties last week, but that came on the heels of the vacancies surging in Invitation Homes’ largest securitization to date, which nearly exceeded $1 billion.
Considering the nature of renters, the level of volatility is to be expected but it is still a potential cause for concern, according to Morningstar. In its presale report, it factored in an expected vacancy rate of 10.1%, but noted that vacancy data in the single-family rental space is limited.
“Traditionally, renters desire the flexibility intrinsic with the short-term nature of a lease. 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,” Morningstar noted in its presale report.
“Therefore, finding and retaining creditworthy renters could be costly and difficult to forecast. An acceptable property manager should demonstrate local knowledge of the rental market for each property and have a strong track record of limiting renter turnover and vacancy.”
As with all of the other SFR securitizations to date, Morningstar noted the limited performance history of the asset class as a potential concern for the performance of the bonds.
The floating rate loan will require interest-only payments and have a two-year term with three 12-month extension options.
The underlying properties are one to four unit residential properties located in ten states, with the top three representing 77.8% of the portfolio: (California (36.5%), Florida (33.1%), and Georgia (8.2%).
Kroll Bond Rating Agency also weighed in on the securitization and awarded similar ratings.
This offering also comes on the heels of a new player in the REO-to-rental securitization market, Silver Bay Realty, which launched its first securitization last week as well.
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.”
Despite some in the market questioning the benefit of the increase in single-family rentals, the securitization market appears to be strong.