American Homes 4 Rent, the second-largest single-family landlord in the U.S., has selected Goldman Sachs Group Inc. to arrange a bond backed by rental home payments, less than three months after Blackstone Group LP completed the first sale of its type.
The company, founded by B. Wayne Hughes, could sell as much as $500 million of the debt, according to two people with knowledge of the offering, who asked not to be identified as terms aren’t set. American Homes 4 Rent has spent $3.5 billion to acquire more than 21,000 rental houses across the U.S., making it the biggest landlord after Blackstone.
Rental bonds are providing a new source of capital to landlords, after private-equity firms, hedge funds and other investors went on a $20 billion buying spree in the last two years to purchase as many as 200,000 homes to lease, according to Jade Rahmani, a housing analyst with Keefe Bruyette & Woods Inc. Demand for rentals has increased after about 8 million homeowners lost their properties to foreclosures or sold at a loss since 2007.
“This could be a $15 billion or $20 billion-plus-a-year kind of an asset class,” Ryan Stark, a director who runs mortgage finance at Deutsche Bank AG, said at a conference in Las Vegas last week. The Frankfurt-based lender led the debut $479 million offering for Blackstone, which was tied to 3,207 homes.
Representative Mark Takano, a California Democrat whose district was hit hard by the foreclosure crisis, said Congress should hold hearings to weigh regulating the new securities, because they’re helping increase the competitive advantage investors have over ordinary home buyers.
The deals show “a clear pattern for investment groups who are looking to gain from these questionable financial instruments,” Takano said in a statement after Bloomberg News reported the Goldman Sachs-American Homes 4 Rent deal.
Colony American Homes Inc., which has acquired more than 15,000 homes, is also preparing a rental-home bond. The securities are expected to come to market in March, led by JPMorgan Chase & Co. and Credit Suisse Group AG, according to three people with knowledge of that offering, who also asked not to be named because the deal is private.
Peter Nelson, chief financial officer for Agoura Hills, California-based American Homes 4 Rent, didn’t reply to a phone message seeking comment. Spokesmen for Colony American Homes, Goldman Sachs, JPMorgan and Credit Suisse declined to comment.
American Homes 4 Rent has returned 2.9 percent since selling shares to the public in July, including reinvested dividends.