SFR Issuance Remains Hot, But Beware These Headwinds

While CMBS lending is cooling on some fronts, single-family rental issuance is “about as hot as Stephen Curry in an NBA 3-point shooting contest,” says Trepp’s Jack LaForge.

Trepp data reveals that the market has seen $73.53 billion of total issuance since 2013, with a small number of players — including Progressive Residential, CoreVest American Finance, Invitation Homes and Tricon — comprising more than half of all SFR issuance.  SFR issuance had a banner year in 2021, nearly doubling from the prior year’s amount, and has grown to be a larger share than ever of the overall CMBS market. SFRs accounted for nearly 14% of all CMBS issuance through the first nine months of the year, excluding agency issuance.

“With steeper borrowing rates and high prices in the housing market prevailing, many prospective homeowners are opting to rent, making investments in single-family rentals even more enticing,” LaForge says.

However, he cautions that should home prices and financing costs continue to rise, the SFR percentage share of the CMBS market could decline. He cites several recent reports, including news that Blackstone’s Home Partners of America will stop buying houses in 28 cities as of September 1 and in 10 more cities as of October 1.

Corporate landlords are also slowing lending, LaForge says, citing a recent Bloomberg report indicating that Invitation Homes Inc. (13 CMBS deals issued), American Homes 4 Rent (five CMBS deals issued), and Rithm Capital Corp. are among the large landlords telling investors they are assuming a more cautious stance in the short term with respect to the SFR market. And according to Trepp data, there have been five deals issued so far in the third quarter clocking in at $2.11 billion — an amount that would “normally be a lot, but with the precedent set in the previous quarter where over $7 billion was issued, and in 2021 where yearly issuance amounted to $18 billion, it’s possible that SFR issuance in CMBS is actually slowing,” LaForge says.

“In a hypercompetitive housing market, a temporary reprieve on purchases made by corporate landlords may actually do some good in improving the affordability of single-family properties across the country,” LaForge says.

According to CoreLogic, investors appear to be pulling back from acquisitions in the sector: investor interest in purchasing single-family homes has declined each month since February, and the percentage of single-family home purchases by investors slumped 8 points from Q1 to Q2.

Data from Yardi reveals that national asking rents for the SFR sector increased $2, or 9.5% year-over-year, last month, a decline of 170 basis points from July. Yardi analysts said the slump ”could be a sign of the softening of the housing market, though overall SFR rent levels and occupancy rates remain healthy.”