For People Who Care About Important Things

[Jake Kucheck]

We just started a new secondary market for rentals... for lack of a better term- SFRABS.

Details here.

[J Scott]

Originally posted by Bill Mitchell:

@J Scott Would you mind elaborating on what you think is going to happen and whats causing it? Thanks in advance. I guess it has to do with the hedge funds since you mentioned black stone. I didn't think the hedge funds were buying *enough* property to cause a market fall out.

If it's just this initial bond offering backed by 1700 houses owned by Blackstone, I don't imagine anything too bad could come of it. But, when other large firms start offering debt secured rental portfolio income, you'll start to see the same exact risks seen by mortgage backed securities and collateralized debt obligations 5-10 years ago.

Most concerning is that Moody's -- who presumably doesn't have a team of analysts who are intimately familiar with rental real estate -- has given the security a Triple A rating. I'd love to know how they built their models to generate that rating, but they're not saying.

Regardless, you end up with large pools of asset backed debt being highly rated by and purchased by those who don't fully understand the nuances of the underlying asset class -- add in a little bit of "irrational exuberance," and just a small shift in the real estate market can start a domino effect that takes us back to 2008.

As they say, only the names have changed...