Rents Used to Pay Blackstone Leased-Home Bonds Decline 7.6%

Rents collected on the collateral for the first U.S. rental-home securities declined by 7.6 percent from October to January, according to Morningstar Inc.

Payments declined as expiring leases and early tenant departures left residences backing the bonds of Blackstone Group LP’s Invitation Homes vacant, Becky Cao and Brian Alan, analysts at Morningstar’s credit-ratings unit, said in a report. While

8.3 percent of the properties were vacant or occupied by delinquent renters in January, renewals on 78.5 percent of leases that expired the prior month exceeded the analysts’ expected rate of 66.7 percent.

The deal’s performance is being watched as Wall Street bankers and institutional property investors seek to follow Blackstone’s $479.1 million transaction in November with additional offerings. Initial lease expirations for the 3,207 homes are scheduled to peak from January through March, Morningstar said. To woo investors and rating firms in the new market, the transaction started with all of the units leased, unlike bonds backed by apartment-building loans.

“As the number of lease expirations decline throughout 2014, and the vacant properties are filled, we expect the vacancy rate to stabilize and to potentially decline,” the analysts wrote in the report sent by e-mail today.

200,000 Properties

One dealer was offering to sell top-rated notes from the Blackstone transaction for about face value today, according to Empirasign Strategies LLC, which tracks securitization-market trading. Some riskier slices were being offered by JPMorgan Chase & Co. for less than par last month, people with knowledge of trading said then.

Christine Anderson, a spokeswoman for New York-based Blackstone, declined to comment.

Institutional investors, led by companies such as Blackstone’s Invitation Homes and American Homes 4 Rent, have bought as many as 200,000 U.S. properties in the last two years, taking advantage of real estate prices that fell by as much as one-third from the 2006 peak, and rising demand for rentals among Americans who lost their houses in the foreclosure crisis.

Morningstar said it expects a stabilized vacancy rate of 8 percent for homes underlying the first deal after it granted AAA grades to $278.7 million of the notes. Wall Street ultimately may sell more than $20 billion a year of rental-home bonds as investors become comfortable with those tied to smaller landlords, according to Ryan Stark, a director at Deutsche Bank AG, which structured and helped underwrite the transaction.

Kroll Bond Rating Agency said in a report at the time the Blackstone deal closed that its forecasted rental revenues after estimated property expenses covered 1.68 times the obligations to bondholders. Kroll, which used a 10 percent vacancy rate in the calculations, also granted top grades to the biggest slice of the deal, according to the Nov. 19 report.

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