Investments

Progress Residential prices first REO-to-rental securitization

Pricing beginning to normalize in burgeoning asset class

Progress Residential, the latest company to join the growing REO-to-rental securitization market, has priced its first securitization, a $473.4 million offering, backed by a single loan secured by a first priority of mortgages on 3,142 income-producing single-family rental properties.

And in a sign that the REO-to-rental securitization market is beginning to normalize, Progress Residential 2014-SFR1 priced similarly to the last REO-to-rental securitization, American Residential Properties’ (ARPI) $342.67 million securitization.

Progress Residential 2014-SFR1’s $240.93 million Class A tranche priced at priced at 1-month LIBOR plus 110 basis points. The Class A tranche received AAA ratings in the presale reports from Morningstar.

The Class B tranche, which received $44.97 million in AA+ ratings from Morningstar, priced at 1-month LIBOR plus 190 basis points. The Class C tranche, which received $38.55 million in A+ ratings from Morningstar, priced at 1-month LIBOR plus 225 basis points.

The Class D tranche, which received $32.12 million in BBB+ ratings from Morningstar, priced at 1-month LIBOR plus 275 basis points. The Class E tranche, which received $54.61 million in BBB ratings from Morningstar, priced at 1-month LIBOR plus 415 basis points.

And the Class F tranche, which received $38.53 million in BB+ ratings from Morningstar, priced at 1-month LIBOR plus 470 basis points.

Those pricing figures are in line with where American Residential Properties 2014-SFR1 priced in early August.

The $184.66 million Class A tranche of American Residential Properties 2014-SFR1, which received AAA ratings from Morningstar, also priced at 1-month LIBOR plus 110 basis points.

The Class B tranche, which received $35.93 million in AA+ ratings from Morningstar, priced at 1-month LIBOR plus 175 basis points. The Class C tranche, which received $26.31 million in A+ ratings from Morningstar, priced at 1-month LIBOR plus 235 basis points.

The Class D tranche, which received $30.92 million in BBB+ ratings from Morningstar, priced at 1-month LIBOR plus 300 basis points. The Class E tranche, which received $39.97 million in BBB ratings from Morningstar, priced at 1-month LIBOR plus 392 basis points.

And the Class F tranche, which received $24.45 million in BBB- ratings from Morningstar, priced at 1-month LIBOR plus 442 basis points.

Progress Residential itself is a fairly young company, founded in September 2012. As of Sept. 1, Progress had invested approximately $1.8 billion in its portfolio of 10,300 homes, with approximately 700 more under contract to be acquired, Kroll Bond Ratings Agency said in its presale report.

Morningstar said Progress’ level of investment makes it one of the four largest operators in the industry.

“The company has a limited track record of operating in the SFR sector, however, KBRA believes Progress has the experience and has demonstrated that the company has adequate controls in place to ensure that payments are processed in a timely manner and that properties are maintained to high standards,” Kroll noted in its presale.

The pricing of Progress Residential 2014-SFR1 shows that the market is stabilizing as investors begin to fully understand the features and structure of these securitizations.

Investors are also becoming more familiar with SFR securitizations as more and more companies join the market.

Several weeks before American Residential offered its first securitization, Silver Bay Realty launched its first securitization, a $312.67 million offering, supported by 3,089 single-family homes.

And in late July, Invitation Homes brought its third REO-to-rental securitization to market. The offering, Invitation Homes 2014-SFR2, was collateralized by a single $720 million loan secured by the mortgages of 3,750 single-family rental properties.

Despite the recent uptick in SFR securitizations, Kroll and Morningstar both cautioned that the asset class is still relatively new and that the business model is still evolving.

But if Progress Residential 2014-SFR1’s pricing is any indicator, the youth of the asset class may no longer be a concern.

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