Cloudy future for REO-to-rental asset class

While the single-family/real estate-owned rentals could grow in the short term — absorbing excess inventory through shadow inventory pipeline — the long-term outlook remains cloudy.

For single family rentals to develop into a sustainable asset class, property managers and investors will need to show the advantages of scale in operating efficiencies compared to individual investors who manage bulk rentals in a single location of the nation, Barclays ($19.10 0.23%) said in its housing and residential credit outlook. An in-depth analysis ran in the December 2012 issue of HousingWire magazine.

Non-agency mortgage-backed securitizations are slightly concentrated in parts of the Sun Belt region of the U.S., with the exception of Florida. As a result, the impact on defaults and severities are expected to be limited.

The opportunity in rentals remains bright over the next two to three years as slow inventory pipelines are projected to keep a steady supply of distressed properties. Debate remains on how monetizable this asset could be, long term, on the secondary market. Moody’s Investors Service already warns that the asset class may pose risks not typically found in traditional (multifamily) CMBS and (single-family) RMBS.

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