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Greystar Expanding Reach Further into Multifamily Finance With New GSE Debt Fund

Apartment Owner Launches $500 Million Greystar Credit Partners I
June 14, 2018
Bob Faith's Greystar Real Estate is delving further into buying securitized debt. Image credit: Greystar Real Estate Partners

Multifamily investment giant, Greystar Real Estate Partners, has launched its first fund to invest in commercial real estate debt. The $500 million Greystar Credit Partners I will focus on acquiring debt issued by U.S. government-sponsored entities, such as mortgage financing giants Freddie mac and Fannie Mae.

The strategy extends Greystar's multifamily investments into almost all of the income streams from a multifamily property, from rents, to management fees and now to loan repayment streams.

In a deal that may have portended Greystar's new fund, last December Freddie Mac sold a $1.5 billion multifamily securitized offering (K-Deal, K-GS1) backed by fixed and floating-rate multifamily mortgages on 34 properties that Greystar controlled and managed. In that offering, Greystar also acted as the B piece buyer of the offering, the subordinate or secondary tranche in a securitized loan.

B-piece buyers typically have the right to play an active role in making decisions on important issues that can affect the value of the loan or the collateral. That includes such issues as identifying what collateral goes into the offering and having first purchase options on defaulted loans.

Because affiliates of the Greystar were the borrowers in the offering, "the incentives and actions of the B-piece buyer may, in some circumstances, differ from or be adverse to those of purchasers of other classes of certificates," the Freddie Mac securities offering circular stated. However, some of Greystar's or any B-piece buyers' options and rights are restricted on loans with which the buyer is associated.

There are advantages and risk in the strategy for Greystar, according Justin Bakst, director, capital markets analytics for CoStar Group. On the plus side, it helps Freddie Mac fund the sale of the bonds and reduces Greystar's cost of borrowing since it is receiving back a portion of repayment it is making.

On the riskier side, B-piece buyers generally purchase the lowest rated and the very bottom of the bond classes - the unrated class. In addition, any losses to the bond trust come out of the lowest rated bonds first, Bakst said.

Greystar did not respond to requests for comment. In a statement issued by the company, Greystar called the formation of Greystar Credit Partners "a logical progression for us."

"We are driven to explore new avenues where we can positively leverage our extensive operating expertise and scale," said Bob Faith, founder and chief executive officer of Greystar, in the press statement.

Brett Lashley, managing director at Greystar, will oversee Greystar Credit Partners' investment activities. Lashley said Greystar's platform allows it to quickly distill actionable data from local markets around the country.

"We like the risk/return metrics these instruments make available, particularly when our internal data provides the appropriate guidance," Lashley said in the press release.

Based in Charleston, SC, Greystar manages over 415,000 units, with an aggregate estimated value of $80 billion.

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