Front Yard Residential, the company formerly known as Altisource Residential, is planning a significant expansion of its single-family rental business and is forking over more than $500 million to do it.
Front Yard announced earlier this week that it is not only growing its portfolio of single-family rentals to more than 15,000 with a sizable new acquisition, it’s also buying HavenBrook Partners, a property manager, as part of a plan to internalize the management of some of its properties.
Beyond buying HavenBrook, Front Yard is also buying 3,236 single-family rental homes that are currently managed by HavenBrook.
The total outlay for the acquisition of HavenBrook and its single-family rental portfolio: $485 million.
According to Front Yard, the deal strengthens its presence in existing “strategic target” markets, which include Alabama, Florida, Georgia and Minnesota.
“The acquisition of HavenBrook provides Front Yard with an internal property manager and the opportunity to build an efficient, scalable platform that will provide its customers with excellent service and allow it to benefit from economies of scale that will enhance long-term shareholder value,” the company said in a release.
As stated above, this latest acquisition pushes Front Yard’s SFR portfolio over 15,000. It’s a far cry from where the company’s SFR portfolio was just a few years ago.
Two years ago, the company then known as Altisource Residential’s portfolio of single-family rental homes checked in at 777 homes. Then the company nearly tripled its portfolio in a deal with Invitation Homes, acquiring 1,314 single-family rental homes for $111.4 million.
Last year, thanks to a three-part deal with Amherst, Front Yard pushed its rental portfolio to more than 12,000 homes.
Now, the company’s portfolio is more than 15,000, well on its way to the company’s stated goal of a portfolio of 25,000 single-family rentals.
But the HavenBrook deal wasn’t the only one that Front Yard made.
The company is acquiring “certain property management resources” from Altisource Portfolio Solutions for $18 million.
The companies did not identify what specific resource are included in the deal, but Front Yard said that combining the new acquisitions from Altisource Portfolio Solutions with HavenBrook will allow the company to move approximately 4,000 properties that are currently managed by Altisource Portfolio Solutions to its internal property manager.
“The sale of these property management resources to Front Yard allows Altisource to streamline its operations and focus on its buy-renovate-lease-sell business and other opportunities,” Altisource CEO William Shepro said of the deal. “This transaction creates value for Altisource shareholders through the sale of a subscale and unprofitable business line for attractive consideration.”
Shepro added that the company is “pleased” to help Front Yard grow its business. “As a significant shareholder in Front Yard, we also wish the Front Yard team all the best as they continue to grow their business,” Shepro added.
Shepro highlights the relationship between the two companies that once shared the Altisource name, which has caused some issues in the past.
The New York Department of Financial Services began investigating the companies’ relationships with Ocwen Financial in early 2014.
The NYDFS investigation covered Ocwen’s relationship with Altisource Portfolio Solutions, Altisource Residential, Altisource Asset Management, and Home Loan Servicing Solutions, all of which were affiliated with Ocwen in one way or another.
Each of the companies were also chaired at one time by Ocwen’s founder, William Erbey.
That ended though when the NYDFS investigation led to the regulator fining Ocwen $150 million and forcing Erbey to resign from his position as chairman of Ocwen and his position as chairman of the affiliated companies.
Since then, each company has taken steps to diversify its business, as evidenced by Front Yard’s name change and latest round of deals.
Front Yard may be spending $503 million to reshape its business, but the money is not coming out of its own pockets.
Rather, some of the funding is coming from Berkadia Commercial Mortgage, which is providing Front Yard with a $508.7 million of 10-year, fixed rate loan as Freddie Mac’s affordable single-family rental pilot program.
The funding is being used on 2,798 of the newly acquired properties as well as 2,015 additional properties that are already owned by Front Yard and previously financed on its existing warehouse facilities.
According to Front Yard, approximately 78% of the homes financed through the loan have rents that are considered affordable for families earning at or below 80% of the area median income.
“The acquisition of HavenBrook and the homes it manages is a milestone in our company’s evolution as the leading affordable housing provider,” said Front Yard CEO George Ellison.
“The acquisition of an internal property manager will allow us to improve the excellent service to our families while providing opportunities to drive efficiencies to increase shareholder value,” Ellison added. “We are focused on seamlessly and efficiently transitioning properties onto the HavenBrook platform in order to avoid disruptions to the client service experience.”