Invitation Homes’ new single-family rental securitization is largest ever

IH 2015-SFR3 checks in at a record-breaking $1.2 billion

Lest anyone think the single-family rental market isn’t booming right now, Invitation Homes is about to break the record for largest securitization backed by single-family rental homes.

Invitation Homes 2015-SFR3 will be collateralized by a single $1.2 billion loan secured by mortgages on 7,265 income-producing single-family homes, making it the largest single-family rental securitization to date.

The $1.2 billion loan will be originated by JPMorgan Chase (JPM) and is a floating rate loan that will require interest-only payments and have a two-year term with three 12-month extension options.

In fact, the loan for IH 2015-SFR3 is nearly twice as large as Invitation Homes’ last offering, IH 2015-SFR2, which carried a loan balance of $636.7 million. In terms of property count, IH 2015-SFR3 is more than twice as large as IH 2015-SFR2, which was secured by 3,550 rental homes.

Both Morningstar and Kroll Bond Rating Agency issued presale reports for the record-breaking offering, and both awarded AAA ratings to the offering’s $541.33 million Class A tranche.

According to KBRA’s report, the property count on IH 2015-SFR3 is nearly 1,000 homes larger than the next largest single-family rental bond.

“The subject portfolio consists of 7,265 properties, which will be the highest number of homes included in an SFR securitization issued to date,” KBRA notes. “The transaction with the second most homes, IH 2014-SFR1, consisted of 6,473 properties, while the pool sizes for the remaining five Invitation Homes deals ranged from 3,072 to 4,015 properties. The underlying portfolios for the SFR securitizations issued during the past year ranged in size from 2,876 to 4,661 properties, with an average of 3,728.”

Given the relative youth of the asset class, both KBRA and Morningstar cautioned on the class’ limited performance, although this caution is now commonplace with any new single-family rental securitization.

According to KBRA’s presale report, the loan terms of this deal are similar to other single-family rental bonds.

IH 2015-SFR3’s loan structure is similar to the Invitation Homes’ six previous offerings. Additionally, 12 of the 16 deals issued in the last year, including all four Invitation Homes deals, were collateralized by a floating rate loan with a fully extended term of five years, while the remaining four were each collateralized by a fixed rate loan.

Both KBRA and Morningstar note the costs laid out by Invitation Homes on the rehabilitation of the subject properties as a positive for the deal.

“Single-family homes that are occupied by borrowers in financial distress or vacant for extended periods of time are often subject to deferred maintenance and may be subject to occasional vandalism,” KBRA noted. “With respect to the subject portfolio, Invitation Homes has invested an average of $22,984 per property on rehabilitation in excess of the purchase price. The rehabilitation costs equate to an additional 14.5% investment, relative to the purchase price, which is slightly above the average rehab investment of 12.6% with respect to transactions that were issued during the last 12 months.”

The underlying properties are slightly smaller than in some of the recent SFR deals.

“The underlying properties have below average square footage and older build dates when compared to the homes included in prior transactions,” KBRA noted. “The average property size for the subject portfolio is 1,794 square feet. This is slightly less than the average of 1,845 square feet for the six prior Invitation Homes transactions, which ranged from 1,698 square feet to 1,920 square feet. Additionally, the subject properties are smaller than the homes included in SFR deals issued during the past year, which averaged 1,884 square feet.”

In several of the earliest single-family rental deals, the underlying properties were 100% occupied at the time of the securitization’s execution. In the more recent offerings, the vacancy rate varied from around 0.5% to 5%.

The vacancy rate for IH 2015-SFR3 is on the middle range of that scale, with 97.1% of the underlying properties occupied as of the deal’s cutoff date.

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