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Colony Capital Said to Join Landlords for Rental-Home Lending

FEB 18, 2014 3:47pm ET
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Tom Barrack’s Colony Capital LLC is teaming with two other single-family rental-home landlords to offer as much as $1 billion in loans to similar operators this year, said three people with knowledge of the agreement.

Colony’s partner in the venture is San Francisco-based Dwell Finance LLC, said the people, who asked not to be named because the deal is private. The loans of as much as $100 million, and for as much as 70% of the value of the properties, will last as long as five years, according to the website for Dwell. The lender was formed by Gregor Watson and Rob Bloemker, founders of two single-family rental companies with almost 4,000 homes between them.

“We’re targeting well over $1 billion in loans in 2014” with financing from an “institutional partner,” Watson, founder of San Francisco-based 643 Capital Management, said in a telephone interview. He wouldn’t name the partner. “We spent the last two years developing the systems and the processes and the underwriting and now we feel comfortable that we can really scale that business.”

Single-family home landlords, who invested more than $20 billion to buy as many as 200,000 homes in the past two years, have turned to financing smaller operators as housing prices recover and the industry shifts from acquiring to managing properties.

Santa Monica, Calif.-based Colony, which owns more than 15,000 rental houses through its Colony American Homes Inc. unit; Blackstone Group LP, the largest single-family landlord, with more than $8 billion invested in 43,000 homes; and Cerberus Capital Management LP all started lending operations last year to extend credit to smaller operators.

The partnership will increase the lending capacity for Watson, whose 643 Capital extended $100 million in loans to landlords and other investors in 2013, and Colony at a time when corporate-backed lenders have been slow to grow. Blackstone’s B2R Finance LP completed its first loan of $5.7 million last week, more than seven months after New York-based Blackstone started the lending division, according to Dennis Cisterna, a senior vice president at Johnson Capital, an Irvine, Calif.-based brokerage that originated the loan.

Colony declined to comment on its partnership, according to Caroline Luz, a spokeswoman for the company with Owen Blicksilver Public Relations. John Beacham, president of B2R Finance, said he had no immediate comment on last week’s loan.

Financing for landlords has been limited as banks remain reluctant to extend credit after the housing crash, according to Bloemker, chief executive officer of Piedmont, Calif.-based Five Ten Capital LLC. Fannie Mae limits investors to mortgages on 10 properties, and Freddie Mac has a limit of four.

“As home prices rise, credit tends to be more available,” said Bloemker, who worked as a mortgage-portfolio manager at Putnam Investments and Lehman Brothers Holdings Inc. before founding Five Ten. Bloemker also wouldn’t name his financing partner.

Home prices have climbed almost 24% since March 2012, after falling 35% from their July 2006 peak, according to the S&P/Case-Shiller index of 20 cities.

Dwell Finance plans to eventually bundle the loans into mortgage-backed securities, similar to a $479 million issue last year by Blackstone’s single-family rental division, Invitation Homes, Bloemker said.

Wall Street ultimately may sell more than $20 billion a year of bonds backed by rental homes as investors become comfortable buying securities tied to loans to smaller landlords, according to Ryan Stark, a director who runs mortgage finance at Deutsche Bank AG.

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