NEW YORK (
) -- The business of buying, fixing and renting single-family homes that helped kick off the housing recovery has just achieved a significant milestone.
Earlier this week,
(BX - Get Report)
offered the first bond to be backed by rental incomes from over 3,000 U.S. single-family homes.
The $479 million offering, arranged by
, received significant interest from investors, despite the fact that the business model of operating and maintaining geographically- scattered, single-family homes as rentals on a large scale is untested.
According to press
, the offer was oversubscribed on the first day, prompting Blackstone to lower the yields on the offering.
KBW analyst Jade Rahmani believes the participation of several ratings agencies lent credibility to the sector.
Close to 60% of the deal received Triple A rating from
Moody's Investor Services
Kroll Bond Rating Agency
The ratings were more positive than expected, although one agency,
, said the deal would not receive a rating higher than A due to insufficient track record of institutional investors in this business.
Still, the strong demand and attractive pricing of the deal might pave the way for future securitizations, according to Rahmani. The analyst estimates the total addressable opportunity for single-family rental securitization market could top $900 billion. Annual production could total $100 billion.
Deutsche Bank analyst Harris Trifon also sees a boom in rental-backed bond sales. "Considering that almost $20B has already been spent by private equity funds and public companies like American Home 4 Rent over the last year or so, securitized loans backed by home rentals totaling in the billions is not out of the question by this time next year. Indeed, barring another recession, we find it hard to imagine how a relative flood in deals won't happen in the next year or two," he wrote in a note this week.
The analyst believes that all market participants would gain from such transactions. "Bond investors would benefit by having another liquid stable market to participate in, especially in an environment where valuations across the fixed-income credit universe are at or very close to full valuations," he wrote. "Obviously the firms that have already committed capital to the sector would benefit from having a new and potentially deep alternative financing source, but we think the general public could be the biggest beneficiary due to the stabilizing effect that a growing rental market should have on property values and the coffers of local governments."