History is repeating itself, with a twist, when it comes to the single-family rental (SFR) sector and its subset, build-for-rent (BFR). The twist here is that the renewed popularity of SFR among larger players, an interest that first surfaced in the post-Great Recession years, is being accompanied by a concurrent rise in the use of a financing vehicle whose heyday was pre-2008: CMBS.
Trepp reports that new CMBS issuance backing SFR deals had already reached $14.04 billion by midyear of 2021, well ahead of 2020’s full-year total of just under $10 billion. The analytics firm notes that the number of loans issued in 2021 is significantly lower than the number issued in 2020, suggesting that larger if fewer loans have been issued so far this year.
In fact, the year-to-date tally represents just under a quarter of the $59.17-billion volume of CMBS loans backing SFR since the first securitization by Deutsche Bank and Invitation Homes in 2013. That issuance occurred amid the post-2008 wave of acquisitions by investors and institutions taking advantage of the low pricing available for distressed and foreclosed properties.
“Fast-forward to the COVID-19 era or mid-2020, and another spike in demand for the SFR properties, this time driven by pandemic-accelerated factors, swept the market,” says Trepp. “Declining homeownership due to rising house prices, an increase in families seeking larger alternatives to their city apartments, as well as the rising demand for homes in general, were all consumer trends amplified over the past 18 months.”
Accompanying this demand spike is a development spike in the BFR category. Citing the New York Times, Trepp reports that BFR comprises 6% of all new homes being built in the U.S., a figure that’s poised to double in the next 10 years.
Most of this development is concentrated in Sunbelt markets, and it follows that a leader in SFR/BFR securitization is based in one of these strongholds. Among the 10 largest deals issued in 2021, seven have been securitized by Progress Residential, a Jacksonville, FL-based third-party property management service, reports Trepp.
YTD, Progress Residential has invested $5.79 billion in SFR loans that were securitized into CMBS. Other names at the top of the list include FirstKey Homes and Home Partners of America.
Trepp reports that delinquencies for CMBS deals backed by SFR are among the lowest of all property types. The sector reported an overall rate of 0.26% for October of this year, compared to the 4.61% overall rate seen across all property types for the month. Trepp’s CMBS delinquency rate in October 2020 was 0.44% for SFR-backed loans and 8.02% for all property types. “The SFR sector has not reported any significant spikes in delinquencies in either this year or last,” according to Trepp.
Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces.
Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications.
Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).