Bloomberg News

Deutsche Bank Extends $400 Million to Mullen Rental Home Bet (1)

September 09, 2013

Progress Residential LP, a single-family rental company started by former Goldman Sachs Group Inc. partner Donald R. Mullen Jr., obtained a $400 million credit line from Deutsche Bank AG. (DBK)

Progress Residential looks “forward to continuing to invest in our growing portfolio of rental homes across the country,” Mullen said in an e-mailed statement from New York. Progress Residential, formerly called Fundamental REO, has about 6,000 houses in nine states. It expects to spend $2 billion on homes by 2016, according to a March presentation.

Wall Street-backed investors have raised at least $18 billion to buy more than 100,000 houses in the past two years. The companies, including some of the world’s largest private-equity managers, are seeking to take advantage of prices that fell as much as 35 percent below their 2006 peak and rising demand for rentals as the U.S. homeownership rate dropped to about the lowest level in 18 years.

Cheap financing is helping the firms to keep buying as home values rise at the fastest pace in seven years. Prices increasing more rapidly than rents can reduce yields, which borrowing can offset.

“This credit facility is evidence of the growing acceptance of financing for the single-family rental business,” Stephen Blevit, an attorney with Sidley Austin LLP who represents Deutsche Bank, said in an interview from Los Angeles. “We’re really just in the nascent stages of what’s likely to evolve into an industry worth tens of billions of dollars.”

Personal Investments

Mullen personally started investing in rental homes in 2009, while still a partner at Goldman Sachs. He joined the New York-based bank in 2001 after working at First Boston, Drexel Burnham Lambert Inc., Salomon Brothers Inc. and Bear Stearns Cos. He formed Fundamental REO last year with former Bear Stearns colleague Curt Schade.

In 2007, Mullen was named to oversee Goldman Sachs’s mortgage department, which built a position called “the big short,” a $13.9 billion wager against subprime mortgage-related securities. The bet helped make Goldman Sachs Wall Street’s most profitable firm, even as many of its clients lost money, according to a U.S. Senate report.

Deutsche Bank has been a leader in funding institutional landlords entering the historically mom-and-pop business of single-family homeownership. The Frankfurt-based bank led $3.6 billion of credit lines to Blackstone Group LP (BX:US), the largest single-family rental operator, which spent more than $5 billion on 32,000 homes, and $200 million to Apollo Global Management LLC. (APO:US)

Colony American Homes Inc., the Scottsdale, Arizona-based landlord with 15,000 rental houses founded by Thomas Barrack Jr., said last week it obtained a $500 million line of credit from JPMorgan Chase & Co. (JPM:US) The bank line has an accordion feature that allows it to grow to $1 billion. American Homes 4 Rent (AMH:US), an Agoura Hills, California-based single-family operator founded by B. Wayne Hughes, has a $670 million credit line expandable to $1 billion with Wells Fargo & Co. (WFC:US)

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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