On Monday, niche alternative assets investor Pretium, which specializes in residential real estate, mortgage finance and corporate credit, along with a group of its investors, and funds managed by the Real Estate Equity and Alternative Credit strategies of Ares Management Corporation announced the successful completion of their buyout of Front Yard Residential Corporation, a leading provider of high-quality and affordable single-family rental (“SFR”) housing.
With the deal done, Pretium is now the second-largest owner and operator of SFR properties in the United States, with a portfolio of over 55,000 cash-flowing single-family rentals. Pretium will manage the venture and partner with Ares to further optimize and expand Front Yard’s SFR portfolio.
“There is significant opportunity in the SFR market and a clear sense of urgency among institutional investors to deploy capital to this asset class given record-high occupancy rates, stable cash-flow characteristics, and potential for continued capital appreciation,” Pretium Chairman and CEO Don Mullen said upon the deal’s successful close. “With the Front Yard transaction now complete, we are exceptionally well positioned to further capitalize on a diverse set of SFR investment opportunities. We look forward to leveraging our unique operating platform and scale to further drive operating margins and deliver attractive returns to investors.”
The take-private agreement was announced in October 2020 as a $13.50-per-share all-cash transaction that valued Front Yard at $2.4 billion. A competing bid from an unaffiliated third party led the buyers to sweeten the offer price in November to $16.25, valuing Front Yard at $2.5 billion, or a 63 percent premium to its closing share price on the eve of the merger agreement.
“We are pleased to have completed this transaction with Pretium and Front Yard and look forward to putting our collective experience and industry expertise to work to create a scaled and highly diversified portfolio of SFR homes to benefit our stakeholders,” said David Roth, Partner and Head of U.S. Real Estate Equity in the Ares Real Estate Group.
“We look forward to creating value with our partners in what we believe is a particularly strong asset class with compelling secular market tailwinds,” said Joel Holsinger, Partner and Co-Head of Alternative Credit in the Ares Credit Group.
“Pretium and Ares are the perfect partners to lead Front Yard in the next phase of our company’s growth and take our business to the next level as a private, resident-first SFR operator,” said George Ellison, Chief Executive Officer of Front Yard Residential. “Their extensive operating and investment experience coupled with the depth and breadth of their real estate platforms should create unique opportunities for Front Yard to meaningfully scale our business, creating attractive and affordable housing options for a diverse resident base.”
Recent other deals
The deal close follows a number of high-profile transactions in U.S. single family housing properties in recent months. In October, global real estate value investor Rockpoint Group announced that it had formed an exclusive $250 million joint venture with Atlanta SFR owner-operator Resicap, which buys, builds and manages properties in 34 states and 59 markets nationwide.
Together, Rockpoint and Resicap expect to acquire, renovate, and lease 4,500-5,000 high-quality single-family rental homes at price points affordable to residents of established suburban neighborhoods in the Southeastern U.S., Florida, and Texas.
According to the companies at the time the Resicap venture was announced, the partnership will expand Rockpoint’s footprint in the SFR sector to include a more diversified offering of price points and markets, complementary with Rockpoint’s previously announced $375 million joint venture with Dallas-based Invitation Homes, Inc. With the Resicap venture, Rockpoint expects to become a leading investor in the single-family rental home arena.
Rockpoint Managing Member Tom Gilbane said at the time of the venture’s announcement, “We believe that single family rental housing will become a core asset class going forward for many institutional real-estate investors.”