Strong retention rates and fewer lease expirations helped lower the vacancy rates among single-borrower, single-family rental transactions in December 2016, and Morningstar Credit Ratings, LLC expects the vacancy rate to improve further in the coming months. The average vacancy rate among single-borrower, single-family rental transactions declined to 5.1 percent in December from a revised 5.3 percent in November. Among the metropolitan statistical areas most typically seen in single-borrower, single-family rental deals, Memphis, Tennessee had the highest vacancy rate at 8.4 percent in December. The Florida MSAs of Fort Lauderdale, Jacksonville and Sarasota-Bradenton-Venice all had a vacancy rate of at least 6 percent. While still higher than average, Houston vacancies, at 7 percent, fell to their lowest level since August. Rents for properties backing single-family rental securitizations rose by 3.4 percent from their prior contractual rents. This marks the smallest rent increase for 2016 but tracks a similar trend for rent growth seen in 2015, and rent changes were expected to begin to rise in January 2017.
The average delinquency rate in single-family rental securitizations ticked up to 0.9 percent from 0.6 percent the month prior. As of November 2016, the most recent data available, the average retention rate for full-term leases was 77.1 percent.
Rents increased 3.4 percent in December, down from 3.6 percent the prior month. Based on the historical rent changes shown in Chart 1, the rent gains for securitized properties were expected to increase in the beginning of 2017. The RentRange benchmarks track the year-over-year change on three- and four-bedroom median rents, weighted by MSA to match the geographic concentration of the Morningstar database. Chart 2 shows the rental change of renewals versus vacant-to-occupied properties. For November, the latest month for which data is available, the rent change for vacant-to-occupied properties was 1.6 percent, while the rent change for renewal properties was higher at 4.4 percent. That trend matches the relationship that these measures experienced one year ago and renewal rent changes may continue to outpace vacant-to-occupied rent changes through the first quarter of 2017. Chart 3 shows the average contractual rents by MSA have been largely in line with or slightly higher than their property-level RentRange estimates. Exceptions are most notable in the Florida MSAs of Miami, Sarasota-Bradenton-Venice, and Fort Lauderdale. Chart 4 shows the MSA-level rent change. MSAs with rent changes above the 3.4 percent average are blue, while those below are red. The size of the circle indicates the percentage of properties from a given MSA in Morningstar’s overall database.
There have been seven multi-borrower transactions: B2R 2015-1, B2R 2015-2, B2R 2016-1, FKL 2015-SFR1, CAF 2015-1, CAF 2016-1, and CAF 2016-2. As of the most recent remittance report, B2R 2015-1 had one loan that is 30 days delinquent and three that are at least 90 days delinquent. One of the loans that is 90 or more days delinquent, which is 0.4 percent of the transaction balance, is also in foreclosure and was transferred to special servicing in January 2016. In June, the borrower of this loan filed for bankruptcy. The other two loans are at least 90 days delinquent in B2R 2015-1 make up 0.4 percent of the total transaction balance and have been transferred to special servicing. Both were transferred, one in June and the other in November, because of payment default. Separately, B2R 2015-2 has one loan that is 30 days delinquent and three loans that are 90 or more days behind on payments that combine for 0.5 percent of the transaction balance. These loans were also transferred to special servicing because of payment default; one of these loans was transferred in May, one was transferred in August, and the third was transferred in September. B2R 2016-1 has four loans that are 30 days delinquent, one that is 60 days delinquent, and one that remains 90 or more days delinquent. This 90 or more days delinquent loan is 0.2 percent of the total transaction balance and was transferred to special servicing in October for payment default. Additionally, one of the loans in B2R 2016-1 that is 30 days delinquent was transferred to special servicing in December because of delinquency. CAF 2015-1 has three loans that are 30 days delinquent and that includes two loans equal to 4.7 percent of the transaction balance that were transferred to special servicing in November. CAF 2016-1 has one loan that is 30 days delinquent, while CAF 2016-2 has one loan that is 60 days delinquent. Finally, all borrowers in FKL 2015-SFR1 are current. However, one loan that is approximately 1.7 percent of the transaction balance was transferred to special servicing in October for imminent default.
Single-Borrower Charts & Tables
Chart 1 – Single-Family Rental Rent Change vs RentRange Year-Over-Year Rent Change
Sources: Morningstar Credit Ratings, LLC; RentRange
Chart 2 – Rental Changes for Renewals Versus Vacant-to-Occupied Properties
Chart 3 – December Average Contractual Rent Versus Property-Level RentRange Estimate by MSA
Chart 4 – MSA-Level Blended Rent Change*
Sources: Morningstar Credit Ratings, LLC; Tableau Software
*The size of the circles represents the total percentage (by count) of properties in each MSA, ranging from 1.5% to 13.2%. Because of their proximity, the Fort Worth-Arlington, Texas, MSA is hidden behind Dallas-Plano-Irving.
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Morningstar Credit Ratings, LLC. All Rights Reserved. Morningstar Credit Ratings, LLC is a wholly owned subsidiary of Morningstar, Inc. and is registered with the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization (NRSRO). Morningstar and the Morningstar logo are either trademarks or service marks of Morningstar, Inc.
Morningstar publishes its performance summary to provide market participants detailed property-level information on each securitization. The data summarizes issuer-reported property-level information through December. Page 4 includes a summary of the seven multi-borrower transactions. For deals seasoned at least one year, we provide Morningstar DealView Surveillance Analysis reports, available on our website, www.morningstarcreditratings.com.