By Barbra Murray, Contributing Editor
The budding single-family rental market is getting an increasing amount of attention and more heads are turning now that Waypoint Homes and GI Partners have gotten their hands on a $245 million revolving credit facility. Waypoint and GI will utilize part of the funds, provided by Citi, to expand the size of its blossoming portfolio of rental residences.
The purchasing and revitalization of distressed single-family properties is four-year-old Waypoint’s business and the company, which is quickly advancing in its goal of reinventing renting by increasing the nation’s collection of single-family rentals, got a big boost in January when private equity firm GI committed to making an initial equity investment of more than $250 million. The funds will supply the foundation for $1 billion in single-family home acquisitions over the next two years. With the new credit facility in place, Waypoint and GI are well-armed to move full steam in what is essentially a sub-sector of the multi-family market.
Waypoint relied on international legal practice SNR Denton’s capital markets division to help facilitate what turned out to be a rather novel financing structure for a novel business. “[The single-family rental business] is a relatively new industry that really didn’t exist in a meaningful way six or nine months ago,” Gary Beasley, managing director with Waypoint, told Commercial Property Executive. “There’s been an awful lot of equity that’s flowed in since then, but this is the first major credit facility that’s been put in place to support the building of these single-family rental platforms.”
Citi provided a multi-year, revolving credit facility not only for the acquisition and renovation of single-family properties, but for the financing of long-term ownership and management activities. The financing package gives Waypoint a great deal of flexibility, as the company will have access to the funds at increasing advance rates based on the stage of a home’s progress.
“It’s a bit of a hybrid structure in that typically in the residential world, the only financing that’s really available has been traditional mortgage financing,” Beasley said. “This is different. This is much more like a commercial financing where the lender is looking to the cash flows being generated by the homes–which are rented out–to service the debt. We have 2,400 homes; they’re just not all in one location, but each of them has a lease and a resident paying rent and it generates cash flow. So Citi’s been pretty innovative in stepping up doing this with us.”
As Beasley pointed out, the single-family rental industry is certainly moving up the radar in the financing world. In a newsletter released in September, Moody’s Investors Service notes that over the past several months, market interest in the formation of transactions secured by cash flow from single-family rental assets has gone on the upswing, spurred in no small part by portfolios held by Fannie Mae and Freddie Mac, residential mortgage-backed securities trusts and a bevy of financial institutions.
It’s on the rise, but cash flow-backed financing in the single-family rental market is still in its infancy, as evidenced by the fact that Moody’s has yet to provide an analysis of the credit quality of such deals.
“Because no one has yet presented a specific transaction or deal structure to us, we do not yet know the actual structure of these transactions and therefore have not yet completed development of a formal methodology for this type of transaction,” Moody’s said in the newsletter.
But analysis of transactions as Waypoint’s new credit facility is surely on the horizon given the forecast for the single-family rental market.
“Demand for single-family home rentals is also rising; mortgage underwriting is tight and many potential buyers do not qualify for mortgages, while others remain on the sidelines, waiting for home prices to stabilize,” per Moody’s. “Moreover, large numbers of displaced homeowners who have defaulted on their mortgages have no choice but to rent.”
What Waypoint is doing is helping lead the charge to “professionalize” a growing segment of housing that is presently predominantly dominated by mom-and-pop ownership. “We’re giving people quality homes and great service and some unique attributes to the lease, which allows them to build portable equity to buy a home in the future or to do upgrades to their home while they’re renting it, so it’s kind of a different approach,” said Beasley.