Some answers to the thoughts above without speculation.
About whether the homes in the portfolio can be sold to pay back the financing. The answer appears to be yes with some stipulations.
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The deal’s covenants can allow individual properties to be sold, for between 105 percent and 120 percent of their allocated share of the total loan, according to information in the Kroll report, a release of liens that may leave the worst properties backing the remaining securities.
The largest danger may be that Blackstone will be allowed to sell the Invitation Homes business or take it public before the securities mature, said TCW’s Whalen, who described the deal as “well-structured and really well thought in terms of the way they put it together” in general.
“Even if can you get comfortable with a business that’s fairly new, you’ll be subject to the performance and disposition strategy of a company other than Blackstone,” he said. While many of the notes carry substantial loss cushions, “the further down you go” in buying bonds with less protection, “the more subject you are going be to that big risk.”
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Here’s where the properties in the portfolio are located.
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The breakdown includes 34 percent from the Phoenix area, 17 percent from the Riverside-San Bernardino-Ontario region in southern California and the rest from other parts of the state, as well as Florida, Georgia and Illinois.
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About how they are going to repay at the end of the bond offering. These are 5 year bonds, if credit conditions are tight and they can’t refinance to pay back the principle it’s possible they could flood the market with the homes in 5 years.
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Along with the Fed’s $85 billion of monthly bond buying that’s reduced mortgage rates, investors including Blackstone have helped drive property-value gains in the regions. Prices in Phoenix have soared 41 percent from a bottom in 2011, according to an S&P/Case-Shiller index.
When it’s time to repay the debt, rental-home owners may be unable to refinance or sell the bond collateral in bulk and flood the markets, Fitch analysts Suzanne Mistretta,Dan Chambers and Rui Pereira in New York wrote in a statement last month.
The transactions can also be “highly vulnerable to unknown variables” including property taxes, restrictions from homeowner associations and actions by local governments, they said.
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