TIG and Amherst will put up 5% of equity to serve as a first loss piece and will be soliciting investors for the additional senior equity in the coming weeks. TIG and Amherst will target homes with an average price of $122,000, less than the average of the $170,000-$180,000 acquisition price of its competitors in the market, according to an email circulated to prospective investors.
Stuart Lippman, chief executive officer of TIG’s Securitized Asset Fund, writes in the note that changes to the US housing landscape make for an attractive SFR market, and like many of its peers in the space, TIG is looking at today’s tight mortgage standards as a sign that rental prices will be trending upward for the foreseeable future. The joint venture will acquire homes as far west as Texas.
Lippman said that investors can expect returns in the low double digits, and that 20% returns are possible with a fall in cap rates and a possible sale of the portfolio to a larger investor. Lipmann also runs TIG’s flagship ABS vehicle, the TIG Securitized Asset Fund, as well as the esoteric-focused Sunrise Fund.
Lippman could not be reached for comment by press time.
SFR evolving
The SFR market has found itself in transition recently, with securitization issuance slowing and consolidation taking place among some of the big players. Last month, Starwood Waypoint and Colony American Homes, the single family rental investment arms of Starwood Capital Group and Colony Capital, announced plans to merge. The two groups cited disappointing stock performance and the need to scale up as the impetus for consolidation.
In securitization, the new issue market has hit a wall. After a strong showing in 2014, the 2015 pipeline slowed to a trickle and the market this summer went three months without a new deal. Talk last month was that tepid trading in SFR secondary was holding issuers back. The recent American Homes 4 Rent deal last month ended that drought, but there has only been one new deal announced since.
On Wednesday, Colony American Homes announced CAF 2015-1. The $252m deal is Colony’s first multiborrower offering, backed by 69 loans on 4,140 homes. It is only the third multiborrower deal to date. The market has been predicting that SFR will evolve from large loan or single borrower deal structure, backed by one loan on a portfolio of thousands of homes, to a multiborrower model.
“In our view, these types of securitizations represent the future of the SFR market given that smaller investors own close to 15m homes,” Morgan Stanley analyst Richard Hill wrote in an October 2 note.
Lippman did not say in the note whether the JV will explore securitization as a possible exit, only that the opportunity has “multiple take out strategies”.