With $559M Securitized, What Will Colony American Do Next?

PHOENIX—Colony American Homes has priced its second securitization. The single-family rental pass-through certificates secured by 3,727 homes carry a duration-weighted blended interest rate of LIBOR plus 164 basis points. The company expects to realize $558.5 million in proceeds when the transaction closes at the end of the month.

It is the company's second securitization following a similar transaction in April, as well as one of the handful of securitizations in the single-family rental home asset class. Other companies that have executed securitization in this space include American Homes 4 Rent, which priced an approximately $481 million deal last month and Blackstone's Invitation Homes LP, which has also executed two deals including a $1.01 billion offering last month.

As new as this space is, it is also rapidly evolving and the question of how Colony American will deploy those proceeds is an intriguing one. A spokeswoman for the company shed little light on the question. "It will be used for general corporate purposes," she tells GlobeSt.com.

One assumption is that Colony American will continue to acquire distressed houses and turn them into rentals.

It would be a fair assumption, except for the comments executives made at a recent industry conference, not to mention the fledgling moves the company has made in other, related areas. In March, for example, Colony American tapped industry veteran Beth O'Brien (her pedigree includes executive positions at Auction.com, Citigroup Global Markets and Goldman Sachs) to grow the company's lending operations.

Said Justin Chang, CEO of the company at the time of her hire: "The lending opportunity is a massive one, and is a perfect strategic fit for CAH, while leveraging the scale infrastructure and platform we have built."

Other hints that Colony American has its eye on building out its lending platform came this month at a conference held by Keefe Bruyette & Woods. Colony Financial President and CEO Richard Saltzman, whose company owns a 25% stake in Colony American Homes, gave a frank description of his view of the landscape and where future opportunities lay.

Lending, in short, is clearly on the radar with the company already having deployed a "modest" $40 million to $50 million.

The US, Saltzman explained, is pretty much near the end of the distressed part of the cycle…"and that has led us to move down the cap stack and be willing to take more financial risk in addition to the typical asset underwriting risk that we feel is our core competency."

The two major areas of growth for the company in the US today in addition to mining its legacy position, he continued "are making transitional first mortgage loans on commercial real estate assets across the country in different property types where typically the debt service coverage is going to be on the lower end of let's say 1.0 to 1.2. Somewhat below the radar screen for typical bank originations and/or typical CMBS originations."

The company is also originating loans to other single-family for rent landlords "where, once we accumulate enough critical mass, we also plan to securitize and redeploy that capital in the lending side of the business."

Another possibility for the Colony brand, Saltzman said, is "third-party best in class management platforms" that focused on a particular property niche or a particular geography.