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Colony Capital markets industry's second-ever REO-to-rental bond

By Adam Tempkin

NEW YORK, March 19 (IFR) - Colony Capital on Wednesday began marketing the second-ever bond based on rental income from foreclosed US properties bought up after the financial crisis and now rented to single families.

The first-ever so-called REO-to-rental or single-family rental (SFR) bond was priced by Blackstone in November.

The new US$500m securitization deal from Colony, a California-based private real estate firm, is being led by JP Morgan and Credit Suisse, investors told IFR.

Investor meetings begin on Thursday and will carry into next week.

With a nascent recovery in home prices, REO-to-rental has become a big business over the last two years that has attracted investment from private equity firms, REITs and others.

Investors such as Invitation Homes and Colony have bought up distressed residential properties - many foreclosed due to the financial crisis - in bulk.

Given the increased demand for rentals, the properties are refurbished and then rented out.

The rental cashflows then provide the income for holders of the SFR bonds.

American Homes 4 Rent, another bulk buyer of distressed properties, is expected to follow the Colony deal with its own SFR bond transaction, likely within the next two months, according to investors and rating agency analysts.

(Reporting by Adam Tempkin; Editing by Marc Carnegie)