Single-Family Rental Properties (SFRs) a Hot Asset Class, But Investment Grade Ratings Unlikely - Fitch
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Interest in so-called REO-to-rental securitizations points to staying power for the new asset class, according to rating agency Fitch. In response to the numerous inquiries, Fitch is offering insight as to how the agency would consider key risks associated with the securitization of single-family rental properties (SFRs) in its new report. The asset class is in its infancy stage and a securitization framework has yet to be developed. As such, Fitch says its approach is still evolving.
Noting the lack of performance data, Fitch expects to place a strong emphasis on reliable data obtained from independent sources for determining rental prices, vacancy rates, supply and demand data and other pricing fundamentals. Even so 'the lack of historical data and ambitious growth strategies by regional operators will make high investment grade ratings on these transactions difficult to attain,' said Senior Director Suzanne Mistretta.
Fitch views the SFR product as a cross between commercial and residential properties. This is because the rental cash flows and the value of the underlying property may both be needed to support a transaction's debt service. Fitch's analysis of the cash flows will likely resemble that of multifamily properties in CMBS, while property values will be assessed using its RMBS sustainable home price (SHP) model. Prospects for actual securitization could materialize by the end of this year or early-2013.
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Noting the lack of performance data, Fitch expects to place a strong emphasis on reliable data obtained from independent sources for determining rental prices, vacancy rates, supply and demand data and other pricing fundamentals. Even so 'the lack of historical data and ambitious growth strategies by regional operators will make high investment grade ratings on these transactions difficult to attain,' said Senior Director Suzanne Mistretta.
Fitch views the SFR product as a cross between commercial and residential properties. This is because the rental cash flows and the value of the underlying property may both be needed to support a transaction's debt service. Fitch's analysis of the cash flows will likely resemble that of multifamily properties in CMBS, while property values will be assessed using its RMBS sustainable home price (SHP) model. Prospects for actual securitization could materialize by the end of this year or early-2013.
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