REFILE-SEC probes home valuations in bonds

4 min read
Joy Wiltermuth

Regulators have asked Blackstone subsidiary Invitation Homes, one of the largest US landlords, to provide information on how it values homes that end up bundled into mortgage-backed bonds.

The news comes as Invitation is working to complete its merger with Starwood Waypoint Homes, a deal that would create the largest operator of single-family rentals in the country.

According to a regulatory filing, the SEC has asked Invitation to provide documents about its use of so-called broker price opinions in evaluating its properties.

Less thorough than traditional property evaluations, BPOs have become a popular option for companies such as Invitation that built up huge home portfolios after the financial crisis.

With so many foreclosed and even abandoned houses available for pennies on the dollar following the crisis, Invitation and its peers became giant nationwide landlords almost overnight.

But that growth has been fuelled partly by the capital raised by bundling hundreds of properties into single-family rental bonds.

And those bonds are now coming under scrutiny for possibly using the same kinds of lax standards seen in the run-up to the last housing crisis.

Starwood Waypoint in fact put its latest SFR bond offering on hold earlier this week, pending new disclosures that the company is also in the sights of the SEC’s probe.

In its filing, Invitation said it would cooperate with the SEC’s investigation - and that it understands other parties in the industry have received similar requests.

Starwood and Invitation both declined to comment.


Brokers earn commissions when a home is bought or sold, a percentage that typically increases when the sale price is higher.

But some say that means they are unlikely to provide the impartial evaluations of properties that professional appraisers are duty bound to provide.

“Appraisers have guidelines and regulations that they must abide by,” said Susan Wachter, professor of real estate and finance at The Wharton School at the University of Pennsylvania.

“Brokers are interested parties, so I don’t understand why they are being used,” she told IFR.

“One could easily imagine in a heated market where deals are being chased that standards could go by the wayside,” she said. “It is understandable that the SEC is looking at this.”

The valuations are at the core of bonds based on single-family rentals, said Christopher Sullivan, chief investment officer of the United Nations Federal Credit Union in New York.

“It’s appropriate to apply scrutiny,” he said of the SEC probe. “I guess it’s kind of human nature to retreat back to using not the best practices.”

Yet others say that brokers often have a more realistic view of a property’s worth, in part because they may have significant experience in the surrounding community.

“I trust a broker’s valuation more than an appraisal,” said Michael Brennan, chairman of Brennan Investment Group, which owns properties in 25 states.

“If a broker takes a listing, they better be right on the price.”


In March the SEC notified Radian Group, the parent of Green River Capital, a frequently used provider of BPOs, that it was investigating the use of its valuations in rental bonds.

The probe has since expanded to landlords that have sold bonds backed by their rental properties.

A notice of the SEC probe was also included in a Starwood Waypoint filing on Wednesday.

A banker with knowledge of the transaction said the company’s bond sale was halted until it could inform investors of the probe through a public filing.

“With that, investors are being asked to confirm their orders,” the banker said.

Investors said on Tuesday they expected the deal to still price this week. But the banker said pricing now will hinge on the reconfirmation process.

To date, there have been no defaults of single family rental bond deals since Invitation Homes sold the industry’s debut offering almost four years ago.

A car from Invitation Homes is shown parked outside a rental home