Starwood Waypoint Residential Trust, a U.S. single-family home landlord, plans to offer $505 million of debt tied to its rental properties in its first bond sale, according to a person with knowledge of the transaction.
The company, whose chairman is Barry Sternlicht, is working with JPMorgan Chase Co., Citigroup Inc. and Deutsche Bank AG to sell the securities, which will be marketed starting this week, said the person, who asked not to be identified because the plans are private. The debt will have a floating interest rate and a loan-to-value ratio of 70%, and will be rated by Moody’s Investors Service Inc., Kroll Bond Rating Agency and Morningstar Inc., the person said.
Jason Chudoba, a spokesman for Oakland, Calif.-based Starwood Waypoint; Amanda Williams, a Deutsche Bank representative; Jessica Francisco, a JPMorgan spokeswoman; and Danielle Romero-Apsilos, a Citigroup representative, declined to comment on the offering.
Corporate single-family landlords already have issued more than $6.5 billion of securities backed by mortgages on about 46,000 rental homes in the past year, data compiled by Bloomberg show. The first of these bonds were sold a year ago by Blackstone Group’s Invitation Homes. Private-equity firms, hedge funds and other institutional investors started a $25 billion home-buying binge in 2012, seeking to benefit from low property prices and rising demand for rentals.
Starwood Waypoint controls 10,430 homes and 4,695 nonperforming loans, with a focus on Florida and Texas and a total value of almost $1.57 billion, as of Sept. 30, according to regulatory filings.
The supply of bonds backed by mortgages on rental homes has outpaced demand, with investors seeking greater yield spreads over benchmark rates. Bond offerings stand to increase when firms such as Blackstone, Cerberus Capital Management LP and Colony Capital LLC bundle their loans to smaller landlords into bonds resembling multiborrower commercial mortgage-backed securities, which the firms expect to begin marketing next year.
The market for bonds tied to rental homes has the potential to grow to as much as $65 billion, with about $30 billion of new issuance a year, as the industry expands and securities are refinanced, Jade Rahmani, a Keefe, Bruyette Woods Inc. analyst, said in a report last month. That compares with about $550 billion for the commercial mortgage-backed securities market.