Cohen Appointed to Service SFR Securitization

CHICAGO—Since November 2013, the single-family rental market has seen more than dozen securitizations, and Cohen Financial, a Chicago-based real estate capital services firm, was recently appointed primary servicer of a $240.8 million securitization offered by FirstKey Lending. However, most securitizations to date have been single-borrower, and this offering is one of the first multi-borrower SFR transactions. Sixteen loans secured by mortgages on 3,628 single-family, two- to four-unit and multifamily rental properties will collateralize FirstKey Lending 2015-SFR1.

And Tim Mazzetti, president of Cohen Financial's Investor Services, tells GlobeSt.com that the vast expansion of the SFR market brought about by the housing crash and the continuing reluctance by many younger consumers to purchase homes will help this new lending product play an expanding role in the coming years.

“We're talking about a huge drop in homeownership,” he says. Before the crash, roughly 70% of the homes in the US were owned, but that number has fallen to the low 60s, one of the lowest rates in 30 to 40 years. Giant private equity firms such as the Blackstone Group have assembled portfolios with thousands of homes and found they get better returns by leasing instead of selling the properties. They also saw an opportunity to create a new long-term loan product.

Last month, GlobeSt.com reported that Invitation Homes, part of the Blackstone Group, has been responsible for six of the 16 single-borrower SFR securitizations to date. The group typically takes several thousands of homes and puts one master loan on top of the properties and securitizes it. However, B2R Finance, which was established in 2013 by funds managed by Blackstone Tactical Opportunities, recently announced the first multi-borrower SFR transactions, $230 million of pass-through certificates backed by 144 mortgage loans that are secured by single-family residential properties, two- to four-unit buildings, condominiums, townhomes, multifamily properties and mixed-use developments.

One of the major differences between these single-family loan products and more traditional transactions is the complexity of the reporting and tracking requirements, says Mazzetti. For traditional securitizations, there is generally one property and “you've got one maintenance guy and one leasing agent, making it easy to track the performance of that asset. It's not quite so easy to do that for 3,600 homes in 11 states.” Cohen has spent more than one year working with FirstKey to develop servicing standards for this diverse portfolio and Mazzetti expects “continuing tweaks by all the parties involved.”

As primary servicer, Cohen will perform all accounting and investor reporting activities, site inspections, real estate tax and insurance obligations for the offering, among other services. The rating agencies are Moody's Investor Services, Inc., Kroll Bond Rating Agency, Inc. and Morningstar Credit Ratings, LLC. Wells Fargo Bank is the master servicer and Midland Loan Services is the special servicer.

“Some people in the industry question the long-term viability of this asset class,” Mazzetti adds, but he believes it has enormous potential. In fact, the market could soon reach $20 billion worth of securitizations backed by about 150,000 homes. “That's no longer a drop in the bucket.”