Monday 22 January 2018

Cerberus exits rental market it was first to enter

Mick Wallace Pic: Tom Burke
Mick Wallace Pic: Tom Burke

Heather Perlberg

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

The investment firm, which has spent billions of dollars acquiring loans tied to Irish property and other assets in this country, 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.

A spokesman for Cerberus 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 and Colony Capital quickly followed, competing to back people with limited ability to fund their purchases. BlackRock, the world's largest money manager, started similar financing last year.

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 $1bn (€780bn) in four deals through November 15, according to Keefe Bruyette & Woods data. Colony announced another $255m 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.

US home prices have climbed more than 30pc 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 2.6pc in the first quarter from 3.4pc 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.

The US investment giant has long been heavily involved in the global real estate market for many years but ramped up its position in the aftermath of the 2008 financial crisis.

It made its first significant forays into Ireland after the creation of Nama in 2010, and has bought two portfolios outright from the state bad bank. It's deal to take over the Project Eagle portfolio of Northern Irish-based loans has been mired in controversy for several months since independent TD Mick Wallace made claims in relation to it in the Dail. There has been no suggestion on wrongdoing on the part of Cerberus at any point in the sale process, which has also been probed by the Northern Ireland Assembly.(Bloomberg)

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