Cerberus Said to Shut Down U.S. Rental-Home Financing Business

  • More than 30 workers at FirstKey Holdings said to lose jobs
  • Volume of loans wasn't large enough to justify costs

Cerberus Capital Management, which led a push by Wall Street firms to lend money to U.S. rental-home investors, is now getting out of the business.

The investment firm will no longer lend to small landlords through its FirstKey Holdings unit, and more than 30 people in the company are being fired, according to people with knowledge of the matter. The volume of loans being made wasn’t large enough to justify the infrastructure costs, said the people, who asked not to be identified because the actions are private.

Chip Smith, a spokesman for Cerberus with Glover Park Group, declined to comment.

Cerberus jumped into landlord financing three years ago, as investors across the country were taking advantage of depressed real estate prices to buy houses and build rental businesses. Firms including Blackstone Group LP and Colony Capital Inc. quickly followed, competing to back people with limited ability to fund their purchases. BlackRock Inc., the world’s largest money manager, started similar financing last year.

Multiborrower Bonds

Cerberus, Blackstone and Colony started packaging the loans of multiple landlords into bonds, opening the door to a new type of debt. The firms did about $1 billion in four deals through Nov. 15, according to Keefe Bruyette & Woods Inc. data. Colony announced another $255 million transaction this week.

Investors increase their returns through the securitization market by selling bonds tied to the loans and keeping the riskiest, highest-yielding portions of the debt.

The firms initially targeted landlords with multimillion-dollar loans and then expanded to offer financing for people with as few as one rental home, a much larger market. Doing one loan at a time, similar to mortgage lending, makes the business more time and cost-intensive.

U.S. home prices have climbed more than 30 percent from their 2012 low, making purchases less attractive for some investors. The share of institutional buyers in the housing market -- those that acquire at least 10 homes in a year -- fell to 2.6 percent in the first quarter from 3.4 percent a year earlier, the 11th consecutive decline, according to RealtyTrac.

FirstKey still plans to consider making larger investor loans as opportunities arise, according to the people with knowledge of the matter. With the rental-financing business closing, the focus will be on FirstKey’s remaining investments, including a bet on modified home loans, they said.

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