Fitch Ratings warms up to SFR asset class

Fitch Ratings’ moratorium on rating single-family securitizations has ended thanks to the arrival of the first multi-borrower deal.

The rating agency, which had shunned the asset class up until now, assigned a preliminary  ‘AAA’ rating to the Class A notes of B2R Finance 2015-1, a $230m securitization.

Previous single-borrower deals suffered from “elevated cash flow leverage, refinance risk and dependence on property liquidation for debt repayment,” Fitch has claimed, maintaining that it would have capped those deals with its ‘A’ rating.

Multi-borrower deals carry longer historical loan performance data; the smaller landlords have been operating their properties much longer than institutional players, which only entered the SFR space after the recession and make up a tiny slice of total SFR inventory.

“Similar to single borrower SFR, sector and property level operating history are limited,” Fitch said in a pre-sale report. “However, historical investor loan performance provides a reasonable proxy for expected through-the-cycle performance.”

In addition, the loans securitized by the deal are more geographically diverse and carry lower leverage than previous deals. Fitch calculated the debt yield on B2R Finance’s 2015-1 of 8.7%. By comparison, Kroll Bond Rating Agency calculated the debt yield for the most recent single-borrower, single-family rental securitization, Invitation Homes 2015-SFR2, at 4.4%.

The B2R Finance 2015-1 pool consists of 144 loans secured by 3,160 properties; including single-family residential properties, two- to four-unit properties, condominium properties, townhomes, multifamily properties and mixed-use properties.

FirstKey Lending is also in the process of issuing a second multi-borrower SFR securitzation, FirstKey Lending 2015-SFR1. The $241m deal will be collateralized by 16 loans secured by mortgages on 3,628 homes. KBRA awarded $149.9m in ‘AAA’ ratings to its Class A tranche.