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In reply to the discussion: STOCK MARKET WATCH -- Friday, 27 December 2013 [View all]Demeter
(85,373 posts)6. Wall Street Is My Landlord; Blackstone's Home Rental Bonds Yet Another Sign of Renewed Credit Bubble
http://globaleconomicanalysis.blogspot.com/2013/12/wall-street-is-my-landlord-blackstones.html
http://www.bloomberg.com/infographics/2013-12-20/wall-st-is-my-landlord.html
Blackstone Group LP, the world's largest private equity firm, became the largest owner of rental homes in the U.S. , acquiring 41,000 homes in the past two years. In October, Blackstone offered the first-ever "rental-home-backed" security on Wall Street. The bond is backed by just a fraction 3,207 of the rental properties owned by Blackstone. Monthly rent checks from the properties will be used to service the $479.1 million security...Let's focus on the credit aspect of what's in the Blackstone/Deutsche "Invitation Homes", first-ever rent-based bond offering.
http://www.bloomberg.com/infographics/2013-12-20/blackstones-big-bet-on-rental-homes.html
Let's focus on the credit aspect of what's in the Blackstone/Deutsche "Invitation Homes", first-ever rent-based bond offering. Here is a snip from the gigantic infographic in the link above.
What do investors get for their money?
A Bond Credit Rating Table courtesy of Wikipedia will help explain.
SEE LINK...I CAN'T GRAB IT
Whether or not one really believes the Aaa tranche truly deserves that rating, all those investors get is a coupon rate of 1.314%. Those buying the class "D" offering, rated Baa2, get a "lower medium grade" bond, two steps above junk (again assuming the class really deserves that rating). Those investors get a 2.314% return. Classes E and F, both "unrated" are highly likely to be pure garbage in my estimation...
13-Point Deal Summary
Biggest Risk
What the biggest risk? Whalen says "The largest danger may be that Blackstone will be allowed to sell the Invitation Homes business or take it public before the securities mature".
I disagree. I think the biggest deal-based risk is that individual properties can be sold over time, leaving increasing amounts of garbage in the loan portfolio. That thought alone makes me suspicious as to how Blackstone picked properties to go into this pool in the first place...The only surprising thing is how quickly investors were willing to repeat their last mistake.
YIKES!
http://www.bloomberg.com/infographics/2013-12-20/wall-st-is-my-landlord.html
Blackstone Group LP, the world's largest private equity firm, became the largest owner of rental homes in the U.S. , acquiring 41,000 homes in the past two years. In October, Blackstone offered the first-ever "rental-home-backed" security on Wall Street. The bond is backed by just a fraction 3,207 of the rental properties owned by Blackstone. Monthly rent checks from the properties will be used to service the $479.1 million security...Let's focus on the credit aspect of what's in the Blackstone/Deutsche "Invitation Homes", first-ever rent-based bond offering.
http://www.bloomberg.com/infographics/2013-12-20/blackstones-big-bet-on-rental-homes.html
Let's focus on the credit aspect of what's in the Blackstone/Deutsche "Invitation Homes", first-ever rent-based bond offering. Here is a snip from the gigantic infographic in the link above.
What do investors get for their money?
A Bond Credit Rating Table courtesy of Wikipedia will help explain.
SEE LINK...I CAN'T GRAB IT
Whether or not one really believes the Aaa tranche truly deserves that rating, all those investors get is a coupon rate of 1.314%. Those buying the class "D" offering, rated Baa2, get a "lower medium grade" bond, two steps above junk (again assuming the class really deserves that rating). Those investors get a 2.314% return. Classes E and F, both "unrated" are highly likely to be pure garbage in my estimation...
13-Point Deal Summary
- Moody's rates 42% of the deal as Aaa Prime, Fitch rates none of it AAA prime. Whom do you believe? I believe Fitch.
- 18.27 percent of the deal is not rated at all, and highly likely pure garbage.
- Cushion to cover interest payments is smaller than in deals tied to apartment complexes
- Collateral for the bonds lower than recent residential-mortgage securities
- No track record for these securities
- Regional risk - properties concentrated in Phoenix and California
- Transactions highly vulnerable to unknown variables including property taxes, restrictions from homeowner associations and actions by local governments
- When its time to repay the debt, rental-home owners may be unable to refinance or sell the bond collateral
- The offering is loaded with default risk, normal repair risk, renter damage risk
- Estimated current value of homes includes rapid price appreciation (brought on by Blackstone snapping up foreclosed houses en masse)
- Home value estimates made by real estate brokers, not licensed appraisers
- Individual properties can be sold, leaving garbage in the loan portfolio
- Blackstone allowed to sell the Invitation Homes business or take it public before the securities mature
Biggest Risk
What the biggest risk? Whalen says "The largest danger may be that Blackstone will be allowed to sell the Invitation Homes business or take it public before the securities mature".
I disagree. I think the biggest deal-based risk is that individual properties can be sold over time, leaving increasing amounts of garbage in the loan portfolio. That thought alone makes me suspicious as to how Blackstone picked properties to go into this pool in the first place...The only surprising thing is how quickly investors were willing to repeat their last mistake.
YIKES!
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