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» VISIT US ONLINE @ DSNEWS.COM 61 number will increase significantly over the next several years. We expect detached homes for rent to become an important segmentation opportunity for the top masterplans in the country, who will no longer ignore 10 percent of housing demand." TWO GIANTS MERGE "It's a growing industry with billions of dollars in transactions on an annual basis," says Tim Herriage, CEO of 2020 REI Companies. As the demand for single-family rental housing grows, the "historically a mom and pop business" continues to transform into a more of an institutional investor's market. In September, two of the major players made a major move. Starwood Waypoint Residential Trust (SWAY) and Colony American Homes, two of the largest single-family rental home companies in the United States announced the signing of a definitive merger agreement, combining the two companies in a stock-for- stock transaction expected to close in the first quarter of 2016. e combined company, which will be managed internationally, is expected to own and manage more than 30,000 single-family homes nationwide and have an asset value of about $7.7 billion when the transaction closes. e companies are expected to achieve estimated annualized cost synergies of between $40 million and $50 million by merging. "is merger is a transformative event for SWAY and for our industry," said Barry Sternlicht, Chairman and CEO of Starwood Capital Group, partner of SWAY. "Combining two best-in-class teams, with a superior portfolio of homes in carefully selected geographic markets, positions us to deliver long-term capital appreciation for our shareholders while earning compelling current yields at or above those currently achievable in other major real estate asset classes." Sternlicht and omas J. Barrack, Jr., Executive Chairman of Colony Capital, will serve as non-executive Co-Chairmen of the merged company's Board of Trustees. Fred Tuomi, President and COO of Colony, will serve as CEO of the new merged company, while SWAY CEO Doug Brien will serve as president and COO. "We believe this merger demonstrates the power of scale and consolidation and really crystallizes the long-term durability of the single-family rental industry; this combination of Colony and SWAY truly redefines this asset class, and the opportunity in front of us is immense," Barrack said. e impending merger is seen by many as a bet that the homeownership rate will remain low and that competition for single-family housing will remain fierce which in turn drives rent higher. It looks to be a pretty good bet. According to a new study released by Harvard's Joint Center for Housing Studies, e number of U.S. households that spend at least half of their income on rent is set to increase by 25% to 14.8 million over the next decade. "Our analysis shows that even in the unlikely event that income growth greatly outpaces rent gains, the number of severely cost-burdened renters will remain near current record levels," said Christopher Herbert, managing director of the Joint Center for Housing Studies. MOVING FORWARD While rents continue to rise and this sector of the industry becomes a bigger part of housing finance picture, there are still questions that must be answered. What if homeownership returns to higher levels that it saw in good economic times? Will the rental industry still be viable? What happens if there is a downturn? "When you look at supply and demand, and the millennial factor, and now the availability of capital markets backing the space, it's going to not only feed new transactions, but with regards to default servicing, there will end up being opportunities there," Herriage said. "You can't operate on a zero loss. You're going to have defaults, you are going to have servicing issues. Right now the servicing space is wide open. ere are a couple of servicers who are willing to service this paper, but for the most part, the big guys haven't gotten in. I think over the next 12 to 18 months you'll see this industry continue to mature and become more mainstream." "We believe this merger demonstrates the power of scale and consolidation and really crystallizes the long-term durability of the single-family rental industry; this combination of Colony and SWAY truly redefines this asset class, and the opportunity in front of us is immense." –Thomas J. Barrack, Jr., Executive Chairman of Colony Capital COVER STORY INDUSTRY INSIGHT INDUSTRY INSIGHT M ARKET PUL SE

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