By the Numbers
The state of the SFR securitization market
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
The strong fundamentals of the SFR sector have contributed to somewhat lower volatility and less spread widening than seen in some other products. The ‘AAA’ classes of SFR deals, which are typically issued with 5- to 7-year average life, continue to trade steadily in the 50 bp to 90 bp range over swaps. These classes did look inexpensive relative to agency CMBS when those spreads were at their tights, but now appear closer to fair value since the substantial widening in Ks and DUS. Overall, the depth and liquidity of the SFR market has improved during the pandemic.
The pace of SFR issuance accelerated in 2020 and 2021 as operators expanded their portfolios in response to strong housing fundamentals (Exhibit 1). Before 2020, SFR issuance averaged $5.25 billion a year. Total issuance grew to $10 billion in 2020, then nearly $18 billion in 2021 as the number of new deals brought to market tripled from 9 in 2019 to 27 in 2022. The average deal size also grew by 24% from $532 million before the pandemic to $660 million in 2022.
Exhibit 1: Single-family rental securitizations (new issuance)
Note: Data through 3/1/2022.
Source: Bloomberg, Amherst Pierpont Securities
The increase in issuance has led to a deeper and more liquid secondary trading market (Exhibit 2). Secondary trading in the SFR market averaged between $300 million and $400 million a month before the pandemic, then surged to $710 million a month in 2020 and $544 million a month in 2021. As the market has become more volatile in 2022 liquidity has deepened, with monthly average trading volumes above $750 million for the first two months of 2022.
The mix of secondary market trading is also indicative of robust liquidity across the capital structure. The AAA-rated A tranches of deals, which are typically the largest sized tranche in a deal, account for about 40% of SFR trading volume. The E tranches of deals, which are generally the lowest investment grade rated classes at BBB+ to BBB-, account for about 17% of trading volume. The high yield and unrated classes (F and above) which are often privately placed and attractive to hedge funds, account for 19% of secondary market trading volume. The number of trades a month has also risen from averaging 150 a month pre-pandemic to 200 to 300 a month.
Exhibit 2: Secondary trading volumes (by SFR tranche)
Note: Trading volumes have been consolidated across tranches with the same letter, e.g. all trading of F, F1 and F2 tranches is summarized under the “F” tranche. Data through 2/24/2022.
Source: FINRA Trace, Amherst Pierpont Securities
The number of trades a month has also risen from averaging 150 a month pre-pandemic to 200 to 300 a month (Exhibit 3).
Exhibit 3: Secondary trading volume in SFR
Note: Data through 2/24/2022.
Source: FINRA Trace, Amherst Pierpont Securities
Market volatility has driven spreads wider in recent months across most products. SFR spreads in the secondary market have varied significantly by rating and tranche. Bid-ask spreads for the ‘AAA’ A classes have widened modestly in 2022, but so far they remain mostly below 100 bp (Exhibit 4). The D tranches, which are mostly ‘BBB’, have widened in secondary trading from the low 100s during the recent tights of mid-2021, to the high 100s touching 200 bp in a few trades this year. There’s considerable spread range depending on the deal and rating (BBB+ / BBB / BBB-), but the widening so far in 2022 has taken Ds back to where they were in early 2021 and late 2016.
Exhibit 4: SFR secondary market trading spreads to for select classes
Note: Spreads shown are spreads to swaps to final maturity, without extension. Both bid and ask spreads are included. Transactions in the same Cusip typically occur on the same day. When multiple Cusips of the same class trade on the same day, average spreads are shown which can result in very wide apparent bid-ask spreads, though they often include multiple Cusips, particularly on heavy trading and issuance days. Data through 2/24/2022.
Source: FINRA Trace, Amherst Pierpont Securities
The F classes are typically non-investment grade, and those spreads have widened to 300 to 400 bp in some recent trades, while the unrated Gs have been trading in the 300 to 500 bp spread range. The more subordinated, unrated classes trade less frequently are highly deal dependent, but some have printed in the 600 bp to 1000 bp spread range over the last few months.
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