Pretium, Ares Management Forge $2.4B SFR Deal

Image by Gustavo Zambelli via Unsplash

Institutional investment in the single-family rental (SFR) sector is heating up, with Pretium and Ares Management Corp. partnering to acquire Front Yard Residential Corp. in a transaction valued at roughly $2.4 billion. The deal for the rental home provider will make asset manager Pretium the nation’s second-largest owner and operator of SFR, with a portfolio of more than 55,000 homes.

NYSE-listed Front Yard had previously struck a deal, announced in February, to be acquired by Amherst Holdings subsidiary Amherst Residential for $2.3 billion. But that agreement was scrapped in May due to complexities and uncertainties created by the global health crisis.

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Under the terms of the new merger agreement, a partnership led by Pretium and including Ares-managed funds will acquire Front Yard in an all-cash deal that is described as the sector’s first public-to-private transaction. The transaction price includes debt to be assumed or refinanced. The Ares funds are managed by the company’s Real Estate Equity and Alternative strategies.

Front Yard has a total portfolio of 14,512 rental homes (14,221 of which are leased) as of June 30, according to a company presentation. Rental revenues totaled $55.1 million in the second quarter and 98.3 percent of stabilized rentals were leased. Homes are scattered across the Sunbelt, including Alabama, the Carolinas, Florida, Georgia, Oklahoma, Tennessee and Texas, along with several Midwestern states including Indiana and Minnesota.

Pretium will manage the venture following the closing, slated for the first quarter of 2021 and subject to shareholder approval. Front Yard stockholders will receive $13.50 in cash per share under the terms of the agreement, representing a premium of about 35.5 percent over Front Yard’s closing share price as of last Friday.

Big players move in

Formed in 2012, alternative investment management firm Pretium has more than $16 billion of assets under management, including a steadily growing SFR portfolio as well as corporate and structured debt. Last December, Pretium completed a $1.5 billion recap for its 2013 SFR fund. The transaction spans more than 20,000 cash-flowing rental homes managed by the Pretium and serviced by its property and asset management platform Progress Residential.

The latest move by Pretium and Ares comes as institutional investors take a bigger bite out of the SFR market, an expanding niche asset class. On the same day that the blockbuster deal was announced, global real estate investment management firm Rockpoint Group said it had formed a $250 million joint venture with Resicap, a major SFR owner and operator based in Atlanta. The partners plan to acquire, renovate and lease between 4,500 and 5,000 homes in suburban neighborhoods of the Southeast, Florida and Texas.

Just last week, Haven Realty Capital and an affiliate of Walton Street Capital LLC partnered to acquire six SFR communities in the Atlanta area for $133.7 million. Nuveen Real Estate also recently announced it was moving into the sector by investing up to $400 million in a new SFR startup called Sparrow, which will initially focus on building a portfolio in Arizona, Florida and Texas.

Last December, Global City Development partnered with alternative investment firm Leste to launch $2.5 billion SFR platform Cassa Life, while Canada’s Tricon Investment Group acquired a portfolio of 708 single-family rental homes in Nashville, Tenn., from Invitation Homes.

Ares, a global alternative investment giant with roughly $165 billion of assets under management, oversees about $14 billion of real estate assets. In June of last year, funds managed by Ares affiliates partnered with Douglaston Development on 601 W. 29th St., a 58-story residential tower in Manhattan’s Hudson Yards neighborhood.