November 30, 2013
A recent $ 278.7 million REO-to-rental securitization deal from Invitation Homes, a subsidiary of Blackstone, has set the pheromone levels of securitization structurers high. If this is a template that one could write on, there is substantial scope for similar deals to follow.
REO, or “real estate owned” is a property that a lender acquires against a defaulted mortgage loan. The lender puts the property to auction typically at a reserve price equal to the outstanding loan – but if the market value is lower than such reserve price, there may not be takers, and the property then becomes a part of the “owned” stock of the lender – thus called “real estate owned”. REO is a part of the non-performing asset portfolio of the lender. Thanks to the crisis, there were tens-of-thousands of such homes on the books of several lenders which REITs have been acquiring since 2008 –which they rent out. This is the so-called “REO-to-rental” market, having an estimated potential of about $ 1 billion.
The deal structure emulates a typical CMBS transaction, though it has elements of an RMBS inbuilt into it. There are 6 classes of notes, with the bottom two unrated. The over-collateralisation at Class A is approximately 41.8%. The transaction has a term of only 5 years, including 3 one-year extensions. Moody’s rating presale report, detailing the transaction is here: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF346785
Reported by: Vinod Kothari