The securitization of residential rental revenue streams in Europe

Jaume Roig Hernando

International Journal of Housing Markets and Analysis, 2017, vol. 10, issue 4, 503-518

Abstract: Purpose - The purpose of this paper is to analyze the securitization of rental streams, a new investment and finance product introduced in the USA in 2013 that enables fundraising from large residential portfolios owned by major investment funds and investment banking. The securities are made up of non-performance loans as well as real estate portfolios of financial entities. Design/methodology/approach - An academic analysis of the European securitization market is performed, as well as a broad overview of the state of the art of the rental housing market and investment property market. Moreover, a market study of Real Estate Owned (hereinafter, REOs) and Real Estate Debts is carried out to determine both the present framework and future trends. Various financial entities and real estate management companies are examined through interviews and data collection to assess the reality of distressed assets and residential portfolios owned by major investors. It introduced the Broker’s Price Opinion concept, de loan-to-value concept and the London Interbank Offered Rate. Findings - REO-to-rental securitization is a step forward toward the democratization of finance through the globalization of the residential market, improving risk sharing for major and retail investors. The securitization of rental streams in Europe has not taken off, despite several issuances in the USA since 2013 with significant success where first tranches obtained a credit qualification of triple-A from the majority of the main rating agencies. Originality/value - At the end of 2013, a global investment firm launched an innovative finance and investment vehicle that securitized the cash flows originating from leased residential properties. That issue resulted in considerable success and in the development of a new alternative and innovative financing source for real estate activity. Taking into account that housing is a primary need of our society, there is a strong motivation for improving the residential market, and thus, REO-to-rental securitization could help take a step forward in making the housing market more efficient.

Keywords: Real estate investment; Property finance; Alternative finance; Non-performance loans; Property securitization; REO-to-rental securitization; R30; G02; G18; G14; G32 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijhmap:ijhma-07-2016-0057

DOI: 10.1108/IJHMA-07-2016-0057

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