Global alternative investment giants Ares and Pretium have
acquired the single-family rental platform Front Yard Residential for $2.4
billion.
Pretium announced the all-cash deal with a group of its
investors and funds managed by the Real Estate Equity and Alternative Credit
strategies of Ares Management Corporation this morning.
Upon completion of the transaction, Pretium will become the
second-largest owner and operator of SFR properties in the United States with a
portfolio of more than 55,000 properties throughout the country.
“This transaction further establishes Pretium as both a pioneer and a leader in the SFR space since 2012, having completed the industry’s largest strategic recapitalization in 2019 and now leading the industry’s first public-to-private transaction,” stated Don Mullen, Chairman and CEO at Pretium.
“We firmly believe that scale is paramount to outperformance
and continuing to create meaningful liquidity for SFR investors is necessary to
ensure robust valuations and the continued flow of institutional capital into
the SFR asset class.”
The transaction demonstrates investors’ increasing demand
for SFR assets and the investment opportunities available to operators that
possess the requisite scale to drive margins.
The sector has grown rapidly in the past decade, evolving
from individual units owned and rented out by small investors, to large
investors acquiring significant portfolios, building new units specifically for
rent and creating entire communities of SFR properties.
Last month Nuveen Real Estate, one of the world’s largest
real estate investment managers, announced that it will invest up to $400
million through Sparrow, a newly launched single-family home rental platform.
“Our investment in Sparrow allows us to efficiently scale
with a best-in-class team in a sector where we have tremendous conviction,”
said Michael Hunter, Global Head of Alternatives and Strategic Transactions at
Nuveen Real Estate.
Earlier this month Invitation Homes announced a $375 million
joint venture with Rockpoint to acquire single-family rental homes.
Canada’s Tricon Investment Group was an early investor in
the sector and, along with American Homes 4 Rent, has moved into the
build-to-rent space.
David Roth, partner and Head of U.S. Real Estate Equity in the Ares Real Estate Group, said, “SFR has become a core real estate asset class that fits well within our investment strategy, and we believe Pretium’s experience as one of the earliest innovators in the sector makes them an ideal partner for us.
“We look forward to partnering with Pretium on this
compelling opportunity to invest in an attractive and well-diversified
portfolio of single-family rental assets.”
“This transaction is an important development in the evolution
of the single-family rental sector as the asset class continues to perform
strongly and attract increasing amounts of institutional investment,” said Don
Mullen, Pretium’s Chairman and CEO. “Pretium is proud of the role we have
played in driving the growth and maturation of the industry, and we look
forward to building on that track record with this acquisition.”
RBC Capital Markets, LLC is serving as financial advisor to
Pretium. BofA Securities is serving as financial advisor to Ares. Sidley Austin
is serving as M&A legal counsel, Fried Frank as partnership legal counsel,
and Hunton Andrews Kurth as special tax and financing counsel to Pretium.
Latham & Watkins is serving as legal counsel to Ares.
Deutsche Bank Securities Inc. is serving as financial
advisor to Front Yard and Weil, Gotshal & Manges LLP is serving as Front
Yard’s legal counsel.
The transaction is expected to close in the first quarter of
2021, subject to the approval of the holders of a majority of Front Yard’s
outstanding shares and the satisfaction of customary closing conditions.
