Pretium’s Housing Insights, December 2022


Pretium’s Housing Insights, December 2022

December 21, 2022


Expanding build-to-rent construction increases housing supply and preserves rental access

Build-to-rent typically produces smaller, more affordable homes that are in shortest supply

Pretium believes single-family rentals are an essential part of the US housing landscape because they provide access to suburban neighborhoods where opportunities and amenities for residents have historically been most abundant.1 Unfortunately, the housing market has over time struggled to create enough rentals in single-family neighborhoods. Recent research by Harvard’s Joint Center for Housing Studies finds that rental deserts — neighborhoods with the fewest rental options — tend to be disproportionately found in suburban locations.2 We believe the primary driver of the shortfall of single-family rental options is that relatively few single-family homes have historically been built as rentals. As shown in Exhibit 1, over the past 10 years only 5% of single-family homes were built as rentals — a much smaller proportion than the 18% of existing single-family homes that serve as rentals. The burden to create single-family rentals thus falls on investors purchasing existing homes; however, as described in Pretium’s October Housing Insights the stock of single-family rentals fell during the pandemic despite increased investor activity.3 Build-to-rent capital flows have increased in recent years4 and residential land surveys show increased activity in the build-to-rent sector5, but even with this increased activity the percent of homes built for rent in the four quarters ending 3Q22 was just 6%.6 Overall, the data suggests that there is considerable scope to increase investment in the build-to-rent sector. Not only would this investment broaden access to single-family rentals; but also, it would help to alleviate the long-term housing supply shortage that has worsened housing affordability. 

Growth in the build-to-rent sector would be particularly beneficial in terms of creating new housing supply because the sector has consistently built smaller, more affordable units compared to homes that are built for sale/ownership. As shown in Exhibit 2, the existing stock of single-family rentals is both older and smaller than the existing stock of owned homes. Importantly, homes built for rent in 2021 remain similar in size to existing singlefamily rentals at just over 1,500 sq. ft. By contrast, homes built for sale have become progressively larger over time to the extent that recently built homes for sale are 17% larger than existing owned homes. In other words, even as worsening supply constraints over time have prompted homebuilders to build larger homes for sale, the build-to-rent sector has maintained its focus on creating the affordable home supply that is in greatest need. 



Source: US Census, American Housing Survey, 2021; Annual Characteristics of New Housing, 2021; Quarterly Starts and Completions
by Purpose and Design, as of 3Q22. % of Construction is calculated on a trailing 10-year basis as of 3Q22.

1. Whitney Airgood-Obrycki, “Suburban Status and Neighbourhood Change”, Urban Studies, November 2019.
2. Harvard Joint Center for Housing Studies, “Rental Deserts Perpetuate Socioeconomic and Racial Segregation”, August 4, 2022.
3. “Investor activity in housing had no discernible impact on homeownership during the pandemic”, Pretium Housing Insights, October 2022.
4. John Burns Real Estate Consulting, “The Light: Now Tracking $50+ Billion of Capital Flooding SFR and BTR Sector”, January 28, 2022.
5. John Burns Real Estate Consulting, “3Q22 Residential Land Survey”, October 26, 2022.
6. US Census, Quarterly Starts and Completions by Purpose and Design, as of 3Q22.

This is not an offer, advertisement, or solicitation for interests in any Pretium managed vehicle and should not be construed or relied upon as
investment advice or as predictive of future market or investment performance. Past performance is not indicative of future results.

The Strategic Case for CLOs vs. High Yield Corporate Bonds


CLO Performance Report, December 2022

December 8, 2022


BB CLOs earn a persistent yield premium – currently over 6% - relative to corporate bonds of equal risk

Pretium believes that most investors who are allocating to high yield corporate bonds should also be considering bonds from the collateralized loan obligation (CLO) sector as well. Per Exhibit 1 below, BB rated CLO bonds have market yields of 13.9% as of November 22, 2022, vs. an average 7.2% yield for BB corporate bonds. Exhibit 2 shows that the extra yield that CLOs earn vs. corporate bonds, the CLO’s “complexity premium”, has grown in recent months, a trend that, we think, has improved the long-run value proposition associated with CLO debt. This yield premium reflects index, or average returns – i.e., “beta”. Industry researchers appear to share the view that CLOs can offer value, as highlighted by the quotations below:

  • Morgan Stanley: “…we believe that the CLO market has more than priced in the downside risks, providing a large margin of safety and attractive risk-reward profile in the debt stack.”1
  • Bank of America: “We continue to see good value in securitized products credit relative to corporate credit, notably in credit risk transfer and CLOs.”2

This is not an offer, advertisement, or solicitation for interests in any Pretium managed vehicle and should not be construed or relied upon as investment advice or as predictive of future market or investment performance. Past performance is not indicative of future results.

While CLOs offer higher yields vs. corporate bonds, a Federal Reserve Bank of Philadelphia study shows that CLO bond instruments have historically had lower default rates compared with the default rates on similarly rated corporate bonds.4 CLOs are backed by senior secured bank loans to corporations, which typically offer higher recovery rates compared with unsecured corporate bonds5; this relatively high collateral quality has helped to limit losses for CLO bond investors. 

CLOs don’t require investors to make material bets on the direction of interest rates

The floating rate nature of CLO bonds tends to reduce risks to investors in high inflation, rising interest rate environments. The BBB rated corporate bond index has suffered a 17% loss in 2022 year-to-date through November 18, 2022; by contrast, the BBB rated CLO index has experienced just a 5% loss, reflecting the relatively lower sensitivity of CLOs to interest rate market drivers including inflation and Federal Reserve policy shifts.6

The CLO asset class has become too large to ignore

CLOs have become a large asset class; in part because of the strong and stable historical performance of the sector, the US CLO market has grown so that over 65% of the $1.4 trillion of leveraged loan debt outstanding is now owned within CLO vehicles.7 Reflecting the growth and maturation of the CLO asset class, a broad range of financial institutions – including banks, insurance companies, mutual funds, pension funds, private equity funds, private credit funds, and hedge funds – are now investing in CLOs.

Why do CLOs earn higher yields than comparably rated corporate bonds?

There are a few possible explanations for why bonds from the CLO sector consistently tend to earn higher yields in comparison with fixed rate corporate bonds. For one, while CLO liquidity has increased over time as the sector has grown, the bonds are not yet quite as liquid as generic corporate bonds. Second, CLO bond cashflows are determined by the performance of a pool of underlying loan assets, and so there may be a complexity premium vs. fixed rate bonds, which are simpler instruments with cashflows driven by a single underlying reference credit. Finally, we think the premium associated with CLOs in part reflects broad underinvestment in the sector, due to investor concerns that CLOs were connected to the problems associated with the global financial crisis. These concerns are, we think, misplaced; while CDO, RMBS and CMBS instruments indeed suffered high default rates in the 2007-2014 period, CLO structures performed far better, with low default rates and high realized returns.8 

In light of the current high yields offered by CLO debt instruments, and the relative return stability of CLOs in periods of volatile interest rates, we think incorporating CLO debt can improve the risk/return profiles of many investors’ portfolios.

1. Source: Morgan Stanley, 2023 US CLO Outlook: Margin of Safety, November 2022.
2. Source: Bank of America, Securitization Weekly, November 4, 2022.
3. Source: Bloomberg, BCBAYW BB Corporate Bond Index and Palmer Square PCLOBBY BB CLO Index, Pretium internal analysis; as of November 22, 2022.
4. Source: “CLO Performance”, Federal Reserve Bank of Philadelphia Working Paper No. 20-48, November 2021, Table 7: Default Rates for CLO Tranches and Corporate Bonds.
5. Source: “Annual default study: After a sharp decline in 2021, defaults will rise modestly this year”, Moody’s, Exhibit 6, February 2022.
6. Source: Bloomberg, LCB1TRUU BBB Corporate Bond Index and Palmer Square PCLOBBBT BBB CLO Index, Pretium internal analysis; as of November 18, 2022.
7. Source: BoA, US CLO Outstanding by Rating, as of November 23, 2022.
8. Source: CLO Performance Report, November 2022, Pretium Partners:
9. Source: Bloomberg, BCBAYW BB Corporate Bond Index and Palmer Square PCLOBBY BB CLO Index, Pretium internal analysis; as of November 22, 2022.
10. Source: Pretium calculation – BB annual yield compounded over a 5-year period.
11. Source: Bloomberg, BCBATRUU BB Corporate Bond Index and Palmer Square PCLOBBTR BB CLO Index, Pretium internal analysis; as of November 23, 2022.
12. Source: BofA CLO Factbook, Bloomberg LF98TRUU High Yield Corporate Bond Index, Pretium internal analysis; as of November 23, 2022.

Pretium Announces Dana Hamilton to Retire from Firm


Pretium Announces Dana Hamilton to Retire from Firm

December 6, 2022

Josh Pristaw Will Lead Real Estate Platform

New York, NY – December 6, 2022 – Pretium, a specialized investment firm with approximately $50 billion in assets under management, today announced that Senior Managing Director and Co-Head of Real Estate, Dana Hamilton, is retiring from the Firm. Josh Pristaw, Senior Managing Director and Co-Head of Real Estate, will lead the Firm’s real estate platform going forward, including investing in and managing the single-family rental funds and separately managed accounts. Ms. Hamilton will stay on as a Senior Advisor into next year in order to ensure a smooth transition. 

“Dana’s leadership in the institutionalization of single-family rentals cannot be overstated, nor can her role in helping Pretium’s platform become the owner of the most single-family rental homes in America,” said Don Mullen, Founder and CEO of Pretium. “Today, we manage investments in nearly 100,000 homes valued at more than $33 billion and have some of the best institutional investors in the world as partners in our funds.”

“We are extremely grateful to Dana for the expertise, commitment, talent, and growth that she brought to Pretium, and we are pleased she will continue to support our business in an advisory capacity,” stated Mullen.

“When Don asked me to join Pretium in 2017, our goal was to establish Progress Residential as a leading single-family residential platform in the U.S.,” said Dana Hamilton, Senior Managing Director and Co-Head of Real Estate. “With tremendous support from the Pretium and Progress Residential teams, I’m proud to say we have done that and much more.”

“Part of Pretium’s competitive advantage is the depth of talent we have across the SFR platform,” continued Hamilton. “Josh and the real estate team are poised to take the platform to the next level with an unparalleled strategy that delivers positive returns for Pretium’s stakeholders and the communities in which they invest.”

“I’m looking forward to building on the strong foundation that Dana has put in place and the success we have achieved together,” said Josh Pristaw, Senior Managing Director and Co-Head of Real Estate. “Our team will continue to prioritize housing choice and investments in our communities as we lead the way in single-family rental housing.”

Ms. Hamilton joined Pretium in 2017 with nearly 25 years of experience in building successful real estate operating companies in the U.S. and Europe. She worked with Archstone for nearly 20 years, where most recently she was President, Europe, responsible for building Archstone’s non-U.S. operating and investment platform. Prior to that role, she was Executive Vice President, in charge of national (U.S.) multi-family operations. Ms. Hamilton received a BA from Stanford University and an MBA from the Haas School of Business at the University of California, Berkeley. She currently serves on the board of Life Storage, Inc. (NYSE:LSI).


June 2022

Pretium’s State of ESG Report

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