The Great Recession has opened doors to investors to exploit opportunities where many have previously ignored. As most of you know, Private Equity giants such as Blackstone and Colony Capital have been buying undervalued residential homes in the tens of thousands with the intention of renting them out to create an everlasting revenue stream. This month BX announced they will do something even more intriguing that has never been done before.. They are offering securities backed solely by the income of a portion of their rental properties.
What are some of your thoughts of this process?
Do you feel more companies will follow suite?
What will be some benefits and drawbacks of investing in this new opportunity, and as well as some social impacts?
Can you post a link of what you are referring to? Are you talking about Blackstones REO to Rental CMBS offering? Because thats not only secured by generated income.
If you are talking abotu somthing else I'd be interested in the article because "back solely by the income portion of their rental properties" isnt real estate related at all. It just sounds like any other corporate bond issued by a real estate company.
Links!
I am in fact referring to BX's REO to rental securitization (Invitation Homes). My understanding is that it was backed solely by the rental revenue stream.
http://www.forbes.com/sites/shahgilani/2013/09/27/income-inequality-is-…
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/11/08/wall-street-…
My understanding is that these deals are supposed to resemble the Alt-A/subprime RMBS risk/return profiles (back when they were done properly, not the 2006-2007 vintages). I don't know much on the subject, just something I heard when this IH securitization was announced.
Interesting.. really, a subprime? The credit agencies rated IH at AAA. Does anyone else have any insight on the subject?
Also, I previously posted the wrong link... meant to post these:
http://www.forbes.com/sites/shahgilani/2013/10/30/trick-or-treat-first-…
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/11/08/wall-street-…
They rated senior tranches of subprime RMBS as AAA, too. I think you're confused on how subordination levels, collateral quality, and credit ratings work.
and that turned out lovely.
The unique part of this offering is that Blackstones equity in theventure is part of the security so the servicers wont have to go through the long forclosure process in case of default.
265 over LIBOR on the BBB- still seems tight for such a unique offering. I don't remember the B-piece buyer in this one but I'm sure it was interesting pricing it. As for the sub prime aspect, I havn't heard that. I did read that the debt yield and LTV of the package was higher than the typical CMBS deal but not that of a RMBS.
It's a smart play by the bond issuers--even if they paid 8-10% interest they'd still be getting "free money" to make 20-25% on future investments.
As far as an investor goes, geesh, I mean, I wouldn't be interested in buying these bonds. I wouldn't want to hold these bonds long-term because of the duration risk/volatility. I would possibly be a short-term buyer if I were buying bonds, but yuck--I mean, this is almost like a stock play. For a shorter-term buyer I would wonder how easy it would be to re-sell them. That would be my main concern.
For the return I'd rather by in an total market equity fund.
FYI this is a 2 year floating rate loan with 3 1 year extensions.
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