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8 REOs will continue to have deferred mainte- nance and property condition issues. So while the number of foreclosures will decrease in the future, the percentage sold to investors will remain high due to deferred maintenance and property preser- vation needs. e recent high volumes of REO and short sale properties with depressed prices and deferred maintenance attracted institutional investors to single-family rentals. e confluence of these factors primed the pump and has enabled institutional investors to achieve critical mass in a number of markets. As the supply of REO and short sales decreases, the industry will focus on acquiring non-performing loans (NPLs) and on consolidation. Currently, there are more than 14 million one-unit rentals and another 2-plus million two-to-four-unit rental properties. Large institutional investors cur- rently own less than 2 percent of today's single-family rental housing stock. Consolidation will take place similar to the consolidation in the apartment in- dustry that started in the 1970s. However, advances in data, technology, and financing will enable this consolidation to occur in a much shorter time frame. Until recently, financing for small and regional single-family rental investors has been an underserved market. According to Blackstone's B2R financing, more than 10 million of the 14 million single-family rentals are unleveraged. e company's B2R lending unit and Cerberus's First- Key Lending are stepping in to fill this financing need. B2R has a program for a loan on five to 500 single-family rentals provided at least 90 percent of the properties are leased. e loan must be at least $0.5 million and no more than $50 million. FirstKey Lending offers loans from $1 million to $100 million. As a practical matter, B2R and FirstKey Lending offer viable financing opportunities for investors with 50 or more properties. However, there is an enormous untapped lending market: providing loans to investors with five to 50 properties. Currently, Fannie Mae and Freddie Mac only lend on up to 10 or up to four properties, respectively, and the GSEs only look at the credit of the borrower. Neither GSE underwrites investment properties using the income approach and a debt service coverage test. Until recently, this made sense since reliable single-family rental data was not available. However, the current availability of reliable and inexpensive rental data creates the opportunity for the development of well-conceived financing products for these small investors. It creates the opportunity for the GSEs to enhance their underwriting criteria, for portfolio lenders to tap this market in a well-controlled fashion. As baby boomers age, single-family rentals offer an interesting investing opportunity. Individuals can invest in public Real Estate Investment Trusts (REITs) such as the American Residential Properties REIT (ARPI) and American Homes 4 Rent REIT (AMH), or they can invest directly with turnkey firms like the MACK Companies in the southwest suburbs of Chicago. MACK purchases 30-to-50- year-old properties in stable communities with good schools and invests an average of $50,000 to refurbish each home to new construction standards. As a result, the properties require minimal maintenance for years, and MACK has a waiting list of tenants for the 1,100 properties it manages. Well-run turnkey firms like MACK Companies represent an attractive REO disposition opportunity for Fannie, Freddie, FHA, and portfolio lenders. When these turnkey firms purchase vacant homes, address the deferred maintenance and/or rehab needs, and manage the properties well, they stabilize local property values and provide quality housing to the neighborhood. Demand for single-family rentals should remain strong. While many families prefer single-family residences to apartments, rising mortgage rates, tougher underwriting requirements, and student debt put homeownership out of reach for many. Renting a single-family home will be a more viable option. Others will find the flexibility of renting more convenient than homeownership. Single-family rentals are rapidly evolving into an asset class with enormous opportuni- ties in the areas of investment, rehab, property management, and lending. However, success will depend on institutional investors and turn- key companies providing quality, well-managed properties that are good neighbors to their communities. It will also depend on lenders avoiding over-saturation of rentals and ensuring their loans are conservatively underwritten and appropriately serviced. Mr. Comeau is CEO of Phillip E. Comeau Company, Inc. He previously held senior executive positions at Freddie Mac and Oxford Development. He has extensive multifamily and single-family financing experience and he is on the Board of Rent- Range a leading provider of single-family rental data and analytics. CONTINUED FROM PAGE 7

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