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Ares, Pretium make $2.4B push into single family rental sector

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.

DON MULLEN

“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.

DAVID ROTH

“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.

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