Colony Capital Offers $560M in Bonds Backed by Single-Family Rentals


Santa Monica, Calif.-based, privately held real estate investment firm Colony Capital has received preliminary ratings for its second offering of RMBS backed by single-family rentals, according to a pre-sale report from Morningstar Credit Ratings.

Colony American Homes 2014-2, a securitization of revenues from single-family homes Colony bought in recent years, will have a total issuance of $558.5 million, according to Morningstar. More than half the offering will be rated AAA and the LTV is 70 percent, the Morningstar report shows.

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The loan is backed 3,727 rental residences owned by Colony, mainly in California, Georgia and Florida. All are currently leased.

Colony’s earlier securitization, Colony American Homes 2014-1, which Morningstar vetted this April, was a success for the firm that they have opted to replicate, according to a report from Bloomberg News.

Richard Saltzman, chief executive officer of the affiliated Colony Financial Inc. said on an earnings call last month that the first offering “further validates single-family rental housing as an institutional asset class,” Bloomberg said.

The servicer for the RMBS is Midland Loan Services.

A representative for Colony declined to comment, citing regulatory concerns.

While some, perhaps most notably Equity Group Investments chairman Sam Zell, have been skeptical about the securitization of single-family rentals, both Colony and Blackstone Group have now made two RMBS offerings backed by single-family rentals they purchased during the downturn. Mr. Zell has said he thought that it was too difficult to predict revenue from homes in such varied markets, as previously reported.

But as many American households opt to rent amid continued economic stagnation, Colony and Blackstone’s logic in buying, then securitizing the assets checks out. They appear to be moving full steam ahead with the new fangled financial products (and such things have never gone wrong before. Right?!).

Last year, as Blackstone began mulling the bond offerings, Jonathan Gray, head of real estate fort he firm, defended the practice, telling The Atlantic Monthly that “the downturn created an opportunity to create a business.” Last October, Blackstone, Deutsche Bank, Credit Suisse and J.P. Morgan announced a $439 million offering on behalf of Invitation Homes, the company Blackstone created to buy up single-family residences in troubled markets post-Lehman collapse, as reported.

Blackstone has offered two sets of single-family rental RMBS so far, Invitation Homes 2013 SFR1 and Invitation Homes 2014 SFR1, both of which were set to close in late May, according to Morningstar.

The Colony securitization will be the fifth bond offering backed by single-family rentals thus far.