All Forum Posts by: Jake Kucheck

They're a little busy now, reviving the MBS market. I'm not surprised that their operations (including acquisitions) have slowed down.

They aren't hedge funds, but you could try the publicly traded REITS, SBY, ARPI, or AMH. You could also try Waypoint, although I'm not sure GA is in their wheelhouse.. If you make contact with anybody at SBY, I would love an intro. Somebody over there is going to make a really big bonus after I have a conversation with them.

BTW... Lew Ranieri (you may remember him from Liar's Poker) is more bullish on these than the very product he created. Article here.

More details emerge, here.

@J Scott ,

The typical exit strategy for these firms has been to underperform their promised returns and then find investors that have lower expectations in an IPO, bailing out the initial investors. The problem comes when you can't even meet the IPO investors expectations (and really, that is a problem, how do you not hit a 5% net yield???), and I'm not sure what the plan is after that. I guess we'll just have to see what SBY, ARPI and AMH do after a few more quarters of earnings go by without them getting into the black.

As for your comparison to subprime, I have to make one distinction. The problem with the securitization of crappy mortgages is that the underlying collateral wasn't really based on anything. Borrowers that were underwritten on teaser rates, or worse yet, underwritten on completely falsified incomes, are obviously going to fail, and fail spectacularly. From my understanding, the securitization of these rental cash flows are based on what balance sheets have shown, not what can be projected from leases. Inasmuch as tenants continue to pay at the same rates they have previously paid (let's not forget there are no "Pay Option Arm" or "No Income/No Asset verification" leases), these cash flows will be arguably more projectable than bond yields based on fantasy mortgage payments.

@Brandon Turner , I'm happy to provide some color commentary.

In essence, this is the start of a more sophisticated and nuanced version of the mortgage boom. In the early-mid 2000s, a lot of people received a lot of loans they should never have, and no one really bothered to ask why. We already knew that and it has been very well documented.

One of the big reasons why this was allowed to happen is that the companies providing these loans not only had no incentive to make good loans, they had plenty of incentive to make terrible loans (or, just as many loans as they could) because the entity they would sell their loans to (Bear Stearns, Lehman, etc) wanted not the yield from individual mortgages, but the ability to package lots of mortgages into some three letter abbreviation (MBS, CMO, CDO, etc) and trade that product as an asset backed security. The reason they could do this so easily is that AAA ratings were given to mortgage pools that were comprised of a significant amount of individual mortgages that would not have been rated anywhere near investment grade. If you think flipping houses is a lucrative business, think about how much you could make from flipping a CDO. I probably don't have to explain how much money was made on Wall Street throughout this process (and that's before we even get into the CDS frenzy that nearly caused AIG to go under).

This is all relevant now because a new type of asset backed security is close to coming to market- one that is based on the cash flows from rental income. If a rating agency gives a AAA rating to this type of ABS, it means a hell of a lot more liquidity for the large SFR aggregation companies out there (think Blackstone, ARPI, Silver Bay, American Homes 4 Rent). As Blackstone has already $6 Billion on 40,000 properties across the country, imagine how much more they could do when they don't have to rely on equity and credit lines, and can monetize their cash flows as well. It also means that really small time aggregators like myself and probably a few others on BP will have a larger pool of PE companies/hedge funds/REITs waiting to buy their inventory, since securitization will likely add credibility to the business model, attracting more firms (and more capital from existing firms). I wrote about the demand for this kind of liquidity back in May, here.

I can imagine that someone that is bearish on the securitization of rental income would say that we are doing subprime all over again... but I don't think that's the case. With subprime, lenders were making stupid loans to non-credit worthy borrowers and kicking the can down the road. In this brave new world of cash flow driven ABS, there is not just more accountability, but smarter people/companies on both sides of the trade. As bad as the publicly traded SFR REITS have been beat up by Wall Street since their IPOs for poor execution of their models and failure to make it into the black at their quarterly reports, I don't think anyone is going to make the argument that they are less competent than subprime borrowers.

Absent some massive scale fraud or global collapse of the US or worldwide economy (and again, we did both of these things with subprime, so its not entirely out of the question), I think that the securitization of rental cash flows will provide more liquidity to a market that could certainly use it, and have a net positive effect on the economy.

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

Details here.

Anyone have a reliable, definitive resource where I can research the effect of past government shutdowns on the timely payment of Section 8 checks? Obviously I don't expect difficulties in October, since those processes will have already been taken care of prior to shutdown, but if this drags out it could affect November rents and beyond.

Anyone with something other than just their opinion- please share.

@Jermain Goins ,

Cash buyer found. Columbus only, for the moment. PM me for more granular criteria.

Hey Floyd,

Found this thread. My company doesn't JV in Columbus, but we do buy the heck out of a few specific areas. PM me for details.

@Joe Delia haha no, that wasn't in reference to will. That was about a fly by night flipping operation that openly violated the no-selling mantra of the club, and were buying at like 90% ARV while taking big acquisition fees. Guys like that piss me off.

As for MI, no worries, but I'm still fielding inquiries every day. I'm happy to meet the guy in person if you think it would help. I'll still take care of you.