Welcome to Two Questions with ColonyAmerican Finance, where we ask team members two questions about what they doand real estate finance. With me here today is Chris Hoeffel, CFO This is Patrick Munro, financial adviser. We’re talking today about, what is a fund manager. Mutual funds… of Colony American Finance, who is a leader in thefinance industry and former president of CREFC.
Chris, what trends do you see in the market that you think rentalinvestors should be taking a closer look at? We’re at a point in time where we’ve seen manyyears of home price appreciation, and there’s concern among some that home Want more control over your home’s security, comfort and convenience? Say hello to another bright idea fr… prices aren’t going to continue to growfor very much longer. The nice thing though for investors inrental housing is that the demographic trends supporting rental growth arepretty significant. We anticipate thateven in places where home prices may notcontinue to grow, rental prices willcontinue to grow over a long period oftime. A lot of our investors are reallyfocused on yield. The most solid growthand the most solid occupancy has been inthe lower to mid-tier home values.
So,instead of investing in very high-endhomes which tend to be more volatile and mayfluctuate in terms of performance basedon housing prices, the lower to mid-tierhomes are really generating prettyconsistent returns. Why should mortgage professionalsconsider this asset class? Well, I liken the SFR market today tothe commercial mortgage business back inthe early nineties, that was a time whenthe CMBS industry was really gettingstarted, I was fortunate enough to bepart of that industry at the time and atthat time the commercial mortgagesecurities market was in its nascentstages, they were trying to win marketshares from insurance companies andbanks and people weren’t sure how muchgrowth there was in the business. It turned out to be a hundred billiondollar-a-year business. Prettysignificant. TodaySFR is a brand new asset class and I thinkthere’s incredible blue sky for growthbecause it’s a product that didn’t existyet there are people all across thecountry that need financing for theirassets, so as a mortgage professionallooking for an opportunity for increasedbusinessand more transactions, I think the SFRspace is pretty interesting. I thinkanyone in the real estate businesswhether on the residential side or thecommercial side knows people that haveportfolios or single family rentalproperties and they often need financing.
This product didn’t exist a few yearsago and so people don’t even know thatthe financing opportunities are there. So,a mortgage professional can reallygenerate a lot of revenue by seeking outthese investors, many of whom they knowalready, and helping them find financingand boosting their returns. Theinteresting thing also is that oncesomebody drinks from the well, they getfinancing and they realized what theirreturn opportunities are on a leveragedproperty they go out and buy more. And so,a mortgage professional can help a smallinvestor become a very large investor. We’ve seen that happen over and overagain. I think particularly for peoplewho are newer to the real estatebusinessthe SFR industry creates a lot ofopportunity because they can help smallinvestors grow into larger investors andthey can really create some interestingmarket share. Colony American finances is aspecialty lender that provides loans toresidential real estate investors.
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