News — Institutional Players Jockeying To Lead Single-Family Rentals Believe Bigger is Better

September 12, 2013

As growth among the publicly held entrants in the single-family field is beginning to show some tapering as housing prices rise and profits have yet to materialize, a handful of players made moves last week to raise investment funds and expand their single-family rental management capabilities.

For starters, Barry Sternlicht’s Starwood Property Trust Inc. edged ever closer to spinning-off its single-family rental homes and distressed and non-performing residential mortgage loans into a new REIT.

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The trust has entered into a non-binding letter of intent to purchase certain assets of an operator of single-family homes. This potential acquisition would be limited to the purchase of management-related assets, and would not include the acquisition of any single-family homes or residential mortgage loans.

If the acquisition goes through, the core management team of the acquired operator would become part of the spin-off, which would then also become a third-party manager of the single-family properties that Starwood does not purchase in the deal.

It was Sternlicht who just a few weeks ago forecasted a potential consolidation within the industry as institutional entrants in the arena vie for scale.

Starwood Property Trust also went to market this week with a 25 million share common stock offering looking to raise up to nearly $700 million. The REIT intends to use the net proceeds to originate and purchase additional commercial mortgage loans and other target assets and investments.

As of June 30, its portfolio of residential REO properties consisted of 4,329 owned single-family rental homes and single-family homes underlying distressed and non-performing residential mortgage loans, including 2,778 single-family rental homes.

Also this past week, Donald R. Mullen Jr., who helped Goldman Sachs Group Inc. profit from the U.S. housing crash before forming his own firm to acquire REO properties, lined up a new revolving credit facility of $400 million.

Mullen’s firm, Progress Residential LLC (formerly Fundamental REO LLC), has raised more than $1.1 billion to buy single-family houses. The proceeds of the new $400 million credit facility will be used for the acquisition, renovation and management of single-family homes across the country. Deutsche Bank served as sole lender.

Progress Residential is leasing nearly 6,000 homes in 20 markets across nine states.

American Homes 4 Rent, which completed its initial public stock offering last month raising more than $670 million, this week filed for a follow on offering of preferred stock looking to raise another $100 million or more. It intends to use the net proceeds of the offering to continue to acquire and renovate single-family properties, including certain escrow properties.

As of July 31, AH4R owned 19,825 single-family properties for an estimated total investment of $3.4 billion and had an additional 458 properties in escrow at an average property price each of $166,636.

Moving forward, American Homes 4 Rent said that it may expand beyond single-family properties to also invest in condominium units, townhouses and real estate-related debt investments.

Lastly, Ocwen Financial Corp., which specializes in servicing high-risk loans, and Altisource, a provider of asset recovery and management services, moved forward with a $100 million follow-on stock offering for their Altisource Residential. The company completed its initial public offering this past May.

Virgin Islands-based Altisource Residential acquires single-family properties by buying distressed mortgage loan portfolios. Its strategy is to work with borrowers to modify and refinance loans to keep them in their homes and convert the majority of unmodified loans into renovated rental properties.

As of June 30, it owned 1,332 single-family mortgages with an unpaid principal balance of $328 million. It did not break out how many of those properties it owned.


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