Exclusive: Cerberus seeks to bankroll investor landlords
Private equity firm Cerberus Capital Management wants to provide financing to small investment firms that are buying foreclosed homes as part of a long-term bullish bet on the housing recovery, according to four sources familiar with the situation.
Cerberus is targeting investment firms that are looking to buy a small number of homes in niche housing markets in the U.S. and rent them out, the sources said. These investors cannot tap the much larger financing deals being put together by banks such as Deutsche Bank, Credit Suisse, and Goldman Sachs Group for institutional buyers of foreclosed homes.
Cerberus' financing deals will be small, under $25 million, and many will be for less than $10 million, the sources said, declining to be identified as the new loan product has not been announced. A spokesman for Cerberus declined to comment.
The move by the New York-based firm, with $20 billion under management, comes amid a rush over the past year by investor groups seeking to raise cash to buy up cheap homes.
The U.S. Federal Reserve has held mortgage rates near record lows, helping to fuel the housing market recovery. A drop in the flow of foreclosed homes coming on to the market has also helped to push up home prices, which soared 8.1 percent in January in 20 metropolitan areas tracked by S&P/Case Shiller, the biggest 12-month rise since June 2006.
The National Association of Realtors said in February that roughly 32 percent of all single-family homes were purchased in all-cash transactions. Historically, the realtor group said all-cash deals have represented no more than 20 percent of all transactions.
But many all-cash buyers also are leveraging themselves with cheap loans from banks.
Large institutional investors - led by private equity firm Blackstone Group, upstart firm American Homes 4 Rent and real estate firm Colony Capital - will spend up to $10 billion over the next two years to buy distressed single family homes, housing analysts estimate. That is part of a strategy to first rent out the homes and later sell them at a profit.
So far, Blackstone is the most aggressive national buyer of homes sold at foreclosures auctions or by banks, amassing a portfolio of about 20,000 homes in largely a half-dozen states. The private equity firm has confirmed spending $3.5 billion on its acquisition strategy. Blackstone also recently secured up to $2.1 billion in bank financing led by Deutsche Bank.
Cerberus' target investor operates on a much smaller scale. A website set up by the firm in February for the new lending platform, called First Key Lending, said Cerberus will provide "innovative financing solutions for stabilized portfolios of 1-4 family U.S. residential properties."
Some housing analysts have said that spending by big institutional buyers has driven up prices for single family homes and made it difficult for smaller investor groups to compete at foreclosure auctions and inventory sales by banks.
The people familiar with Cerberus' plan said the firm could look at some point to package the loans into a securitized note that could be sold to investors to reduce risk if housing prices were to suddenly fall and imperil the ability of investors to pay back the loan.
Cerberus, founded in 1992, has specialized over the years in investing in distressed companies and debt. The firm has portfolios that invest in mortgage-backed securities and non-performing residential loans.
The firm has been looking at the market for foreclosed homes for a year. Cerberus began studying the market when rival firms like Blackstone made the plunge into the market for distressed single-family homes last March.
(Reporting By Matthew Goldstein; Editing by Paritosh Bansal and Chris Reese)