It feels like back to the future in bonds. A brand-new investment product will launch next week that is born of the housing and mortgage crashes but based on the same strategy that caused at least some of the crisis.
Blackstone, the largest investor in single-family rental homes, is introducing a new security backed by those homes. The as-yet unnamed bond will provide investors with not only an income stream from rental properties but also a potential return if they are sold. Much like a mortgage-backed security (MBS), it is a rental-backed security.
JPMorgan, Deutsche Bank and Credit Suisse will market about $500 million of the securities, said sources close to the matter. At least one of the tranches will be triple-A rated, according to sources, although ratings firms said to be involved would not comment.
(Read more: US extends backing for higher-priced mortgages)
Through its Invitation Homes, Blackstone had invested an estimated $5.5 billion in 32,000 homes, according to a KBW report in September, and has continued buying aggressively. The homes are largely in Western states, where the foreclosure crisis hit hardest.
Overall, investors have bought close to 200,000 foreclosed homes in the last few years, sinking nearly $20 billion into this new asset class. Blackstone would not comment on the bond deal, but competitors are watching closely.
"I do believe that securitization serves a great purpose if done well," said Laurie Hawkes, president and chief operating officer of Arizona-based American Residential Properties, a single-family REIT. "But I think it takes a little more development coming."