Pretium’s Housing Insights, January 2023

INSIGHTS

Pretium’s Housing Insights, January 2023

January 26, 2023

Summary

Increased long-distance migration persisted in 2022

The pandemic is likely to have a structural, long-term impact on housing demand

One of the most important debates about the pandemic’s impact on the housing market is whether the surge in demand that began in mid-2020 is a temporary or structural phenomenon. There are numerous indicators of structural pandemic driven changes in household behavior, including the persistence of work-from-home,1 increased online shopping,2 a greater focus on wellness,3 and elevated business formations.4 However, many investors still question whether the pandemic simply pulled forward housing demand, especially since rising rates have obscured underlying trends. Consumer surveys find that households continue to expect the pandemic to have a permanent impact on their housing choices.5 Also, recently released data from the Census indicates that the pandemic boost to long distance migration accelerated well into 2022 even as many other aspects of life returned to prepandemic patterns.6 The Census data is notable because it is a direct measurement of long-distance migration whereas indirect measurements of migration such as postal change of address forms had indicated that migration slowed during 2022.7

As shown in Exhibit 1, interstate migration increased meaningfully in the year ending July 1, 2021 – the first year of the pandemic. If the pandemic’s impact on housing demand was mainly temporary in nature, migration levels should have slowed in the second year of the pandemic as its impact on day-today life waned. Instead, interstate migration increased further in the year ending July 1, 2022 to 1.5x pre-pandemic levels. As shown in Exhibit 2, the increase in migration was a combination of larger outflows from states such as California and New York as well as larger inflows into states such as Florida and Texas. Migration levels are likely to decrease as higher mortgage rates and a slowing economy limit households’ financial ability to move; however, online home search activity indicates that the desire to move to a different metro continued to increase in 2H22.8 Pretium believes that migration data demonstrates the likely structural impact of the pandemic on long-term housing demand and that this increased demand should become apparent again as economic and rate pressures ease.

Exhibit 1

Exhibit 2

 

Source: US Census, Population and Housing Unit Estimates, 2022 Vintage as of December 2022. Years are measured from July 1 to July 1. Top 5 states are Florida, Texas, North Carolina, South Carolina and Tennessee; Bottom 5 states are California, New York, Illinois, New Jersey and Massachusetts.

Want more Housing Insights from Pretium?: Expanding Build-to-Rent Construction Increases Housing Supply and Preserves Rental Access

Statements above regarding the housing market represent the opinions and beliefs of Pretium. There can be no assurance that these will materialize. 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.


1. Barrero, Bloom & Davis, “Why working from home will stick,” National Bureau of Economic Research Working Paper 28731. Data as of January 17, 2023.
2. US Census, Monthly Retail Trade Quarterly E-Commerce Report, Data as of November 18, 2022.
3. McKinsey & Company, “Still feeling good: The US wellness market continues to boom”, September 19, 2022. Placer.AI Quarterly Index – Q4 2022, January 2023.
4. US Census, Business Formation Statistics, Data as of January 17, 2023.
5. UBS, “UBS Evidence Lab inside: 4Q housing intentions remain resilient despite affordability headwinds”, January 5, 2023.
6. US Census, Population and Housing Unit Estimates, 2022 Vintage. Data as of December 2022.
7. Bloomberg, “Urban Migration Slows in 2022 for Many Major US Cities”, September 3, 2022.
8. Redfin, “Homebuyers Are Flocking To The Sun Belt, Attracted To Relatively Affordable Home Prices”, December 19, 2022.

Related Content

2021 Single-Family Rental Factsheet

2021 U.S. Housing Outlook

Pretium Founder and CEO, Don Mullen, Sends Letter to President Biden Urging Collaborative Public and Private Sector Action to Address Our Nation’s Housing Challenges

PRESS RELEASE

Pretium Founder and CEO, Don Mullen, Sends Letter to President Biden Urging Collaborative Public and Private Sector Action to Address Our Nation’s Housing Challenges

January 23, 2023

Affirms Pretium’s Commitment to Housing Affordability and Supply; Urges Joint, Good Faith Efforts Between All Levels of Government and the Private Sector to Drive Long-Term Housing Policy Solutions

NEW YORK, Jan. 23, 2023 — Pretium, a specialized investment firm with more than $50 billion in assets under management, today released the following letter sent by Don Mullen, the firm’s Founder and CEO, to President of the United States Joseph R. Biden, Jr.

Dear Mr. President:

I am writing regarding your Administration’s ongoing efforts to address some of our nation’s most urgent housing challenges. The government, in good faith partnership with the private sector, has a tremendous opportunity to drive long-term, sustainable housing affordability and supply. At Pretium, we have more than $50 billion in assets under management and more than 4,000 employees supporting residential investments (including residential real estate and mortgage finance), as well as corporate and structured credit. Our single-family rental (SFR) platform, Progress Residential, currently manages over 90,000 homes across 30 markets in the United States. Our size and scale provide a unique vantage point from which to advocate for innovative ways the public and private sectors can work together to achieve long-term economic growth and equality. Through collaboration, we can increase rental housing supply, invest in historically disinvested neighborhoods, and eliminate outdated and discriminatory zoning laws. 

Progress Residential has already outlined a comprehensive housing affordability plan, and we appreciate the opportunity to participate in recent White House-led conversations with housing providers about resident-centered property management practices. We look forward to continuing to engage in conversations regarding viable public-private housing solutions and, to that end, encourage consideration of the following proposals by your Administration and bipartisan policymakers in Congress: 

  • Revitalize Single-Family Housing Supply. Freddie Mac has estimated the undersupply of homes at nearly 4 million units1, a supply-demand imbalance that has been building for several decades. The problem is particularly acute in the market for entry-level homes. According to the Bipartisan Policy Center, the number of new entry-level homes built in the 1970s routinely surpassed 420,000 every year. By comparison, in 2020, just 65,000 new entry-level homes were built.2
  • Revitalize Single-Family Housing Supply (continued). Exacerbating this problem is what the Joint Center for Housing Studies of Harvard University refers to as “rental deserts” – the absence of rental housing options in 31 percent of all neighborhoods nationally – which contribute to ongoing socioeconomic inequality and racial segregation.3 We believe there is an urgent need for the federal government to partner with real estate owners to revitalize single-family homes and create programs that support comprehensive housing supply efforts. One policy initiative that the federal government could model or further incentivize are the real estate tax abatements that select states, counties, and cities have offered to encourage longer-term affordable housing, such as the development of new and the preservation of existing SFR housing. A second policy initiative we support, and have submitted public comments on, is extending the Green and Resilient Retrofit Program (GRRP), created by the Inflation Reduction Act of 2022 (Pub. L. 117–169), to single-family assisted housing as well.
  • Increase Private Sector Participation in the Section 8 Housing Choice Voucher (HCV) Program. Today, a persistent gap exists in many public housing authority jurisdictions between the number of Housing Choice Vouchers authorized by the U.S. Department of Housing and Urban Development (HUD) and the number of vouchers actually being used, due to a lack of rental owners’ participation in the program. In order to increase owner-operator participation in the HCV program, Pretium and Progress Residential join other private sector colleagues – including the National Apartment Association and the National Multifamily Housing Council – in endorsing the bipartisan Choice in Affordable Housing Act (S. 1820/H.R. 6880) to reduce administrative burden. In addition, we support the full and immediate implementation by HUD of the flexibilities provided through the Housing Opportunity Through Modernization Act of 2016 (HOTMA; Pub. L. 114-201) including, but not limited to, biennial inspections, paying Housing Assistance Payments (HAP) to landlords prior to inspection, and use of remote virtual inspection. Finally, to provide the benefits of housing innovations and efficiencies to HCV residents, we also propose a new HUD pilot program within Moving to Work (MTW) agencies in 3-5 geographically diverse cities focused on promoting housing choice and equitable access to single-family neighborhoods.
  • Enhance Single-Family Homeownership Opportunities for Underserved Communities. To increase access to homeownership for underserved communities, we propose a new HUD demonstration program where SFR owner-operators could partner with HUD and third-party community-based nonprofit organizations through the currently underutilized HCV Homeownership Program. Participating owner-operators would provide homeownership inventory for the program. In addition to the expenses currently covered under the HCV Homeownership Program4, piloted expenses paid for by HUD would include financial literacy education, homeownership counseling, down payment and closing cost assistance, and coordination with the Federal Housing Administration (FHA) single-family first-time homebuyer programs to eliminate regulatory obstacles.
  • Create Viable Rent-to-Own Options for Consumers. While the United States continues to enjoy historically high homeownership rates (the national homeownership rate was 66% in the third quarter of 2022)5, we could do even more to promote sustainable homeownership. As a 2017 study by the Terner Center for Housing Innovation at the University of California Berkeley noted, “public policy can play an important role in supporting the development of new private mortgage products, and ensuring they benefit consumers…FHA already has the authority and infrastructure in place to offer an assumable mortgage, which would benefit both nonprofits and private entities seeking to launch lease-purchase models. In addition, the complexity of lease-purchase – and determining whether it is the best option based on a household’s finances and future expectations about mobility and house prices – means that any lease-purchase product needs to be accompanied by transparent contracts, effective regulations, and consumer education. FHA and the Federal Housing Finance Agency (FHFA) are in a unique position to provide that type of stewardship and oversight, as well as help to analyze data and evaluate programs to identify and support the expansion of responsible, scalable models.”6 We propose the establishment of a public-private working group – that builds upon FHA’s and FHFA’s existing authority – to create viable SFR rent-to-own options for consumers nationwide. Coupled with the aforementioned proposals to augment our nation’s SFR housing supply, we could meaningfully increase homeownership conversion rates for individuals and families who currently rent, but aspire to be homeowners.
  • Provide Federal Tax Credit for Renters. At Pretium and Progress Residential, we strongly believe in the dignity of renting. As the Urban Institute points out, “US tax policy has historically discriminated against renters and favored homeowners”6 thereby contributing to racial and economic inequality. During your Presidential campaign, you proposed a refundable tax credit for renters equal to the difference between 30 percent of household income and the lesser of gross rent paid and local fair market rent. We encourage you to endorse this proposal again and to push for bipartisan passage in the House and Senate. 

In closing, Mr. President, I agree with you that every American should have “access to housing that is affordable, stable, safe and healthy, accessible, energy efficient and resilient, and located near good schools and with a reasonable commute to their jobs.”7 To achieve this goal, however, we must build a more inclusive housing model that envisions single-family rental housing stability as a key pillar. Single-family rentals offer a unique opportunity to address our national housing crisis and have the ability to contribute to family stability, economic mobility, and positive health outcomes. SFR can provide families access to neighborhoods that have lower poverty and crime rates, higher performing schools, more mixed incomes and other amenities families seek. Pretium and Progress Residential are dedicated to creating equitable outcomes for the residents who choose to live in our communities and have adopted management practices that are designed to provide opportunities for wealth building and homeownership. 

I welcome the opportunity to discuss these proposals with you and your team in greater detail and look forward to working together to create sustainable, bipartisan, publicprivate solutions for our nation’s housing challenges. 

Thank you for your consideration. 

Sincerely, 

Don Mullen,
CEO & Founder

About Pretium

Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has more than $50 billion of assets, comprising real estate investments across 30 markets in the U.S., and employs more than 4,000 people across 30 offices, including its New York headquarters, Dubai, London, Seoul and Sydney. Please visit www.pretium.com for additional information.

Contacts

Jon Keehner / Kate Thompson / Lyle Weston
Joele Frank, Wilkinson Brimmer Katcher
212-355-4449

HARMON Five Points Leasing Soon

PRESS RELEASE

HARMON Five Points Leasing Soon

January 19, 2023

Build-to-Rent Community by Crescent Communities and Pretium Expands Housing Choice in Desirable Market

First HARMON Community to be Certified by the National Green Building Standard

CHARLOTTE, NC and NEW YORK (January 19, 2023)Crescent Communities and Pretium are pleased to announce leasing will begin soon at HARMON Five Points, the fourth build-to-rent (BTR) community under development, and the second in Charlotte, as part of their previously announced joint venture. The community is comprised of 76 BTR homes with accompanying shared amenities. Progress Residential, Pretium’s single-family rental management services platform, is providing the leasing and property management services.

HARMON Five Points offers residents the option to rent three-story townhomes with three bedrooms, three and a half baths, outdoor balconies, private garages, and driveways. Interior finishes include modern, stainless-steel appliances, granite countertops, elevated flooring, spacious nine-foot ceilings, ample window exposure for natural light, and SMART home technology. The community is the first for the HARMON brand to be certified by the National Green Building Standard (NGBS), a residential building certification for sustainable construction and development. Each home is designed to be energy and water efficient, while offering residents a greater degree of comfort and lower utility bills.

Residents of HARMON Five Points will also have access to dedicated communal spaces such as a fire pit with outdoor lounge seating, a lawn area for gatherings and pets, and a direct connection to Five Points Park and Stewart Creek Greenway. HARMON Five Points is located two miles from Uptown and is walking distance from the Gold Line Streetcar.

“HARMON Five Points offers a much-needed new construction infill housing option to the historic West End neighborhood to accommodate the migration and population growth in Charlotte over the past several years,” said Tony Chen, Senior Managing Director of Single-Family Build-to-Rent at Crescent Communities. “We are pleased to have reached the leasing milestone ahead of schedule, and are also excited for the NGBS Bronze certification achievement. Stewardship is fundamental to Crescent Communities’ mission to build community and better people’s lives, and we are excited to extend our commitment to stewardship into our BTR platform through our goal of achieving NGBS Bronze or greater on each HARMON home. We strive to have a positive impact on the planet, people, and places we build and call home, and we look forward to seeing the HARMON Five Points community flourish.” 

“Pretium is a leading investor in homes throughout some of the most desirable areas across the country,  and we are thrilled to have another build-to-rent community welcome residents—bringing our total footprint in the Charlotte market to more than 5,300 homes and demonstrating our commitment to housing choice across growing regions,” said Matt Johnston, Managing Director and Head of Build-to-Rent at Pretium. “In addition to increasing housing access and offering consumers more choices, HARMON Five Points is delivering modern, sustainable homes that will be an important addition to the Charlotte community for years to come. We are committed to continuing our investments to increase the supply of move-in ready homes and contribute to the long-term health of our communities.”

HARMON Five Points is located at 360 Seldon Drive, Charlotte, NC, and was constructed by DRB Group. Additional partners include lender Atlantic Union Bank, landscape architect LandDesign and architectural review by 505Design. Progress Residential, which currently oversees more than 90,000 homes, is a market leader, with the people, technology, scale, and data-driven solutions that streamline operations, optimize asset performance, and provide an exceptional renting and living experience for residents.

Imagery of HARMON Five Points is available here and floorplans can be found here. For more information, please visit: www.liveatharmon.com and rentprogress.com.

About Crescent Communities

Crescent Communities is a nationally recognized, market-leading real estate investor, developer and operator of mixed-use communities. We create high-quality, differentiated residential and commercial communities in many of the fastest growing markets in the United States. Since 1963, our development portfolio has included more than 83 multifamily communities, 24 million square feet of commercial space and 60 single family master-planned communities. Crescent Communities has offices in Charlotte, DC, Atlanta, Orlando, Nashville, Dallas, Denver, Phoenix and Salt Lake City. Our residential communities are branded NOVEL, RENDER and HARMON by Crescent Communities and our industrial developments are branded AXIAL by Crescent Communities and our life science developments are branded THE YIELD by Crescent Communities.

About Pretium

Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has approximately $50 billion of assets, comprising real estate investments across 30 markets in the U.S., and employs more than 4,000 people across 30 offices, including its New York headquarters, Dubai, London, Seoul and Sydney. Please visit www.pretium.com for additional information.

About Progress Residential

Progress Residential is a market leader in intelligent single-family rental management services, with people, technology, scale and data-driven solutions that streamline operations, optimize asset performance, and provide an exceptional renting and living experience for our residents. Progress Residential’s approximately 3,000 employees currently manage approximately 90,000 homes across 30 markets. Progress Residential also offers third-party property management service for investors with mid-to-large single-family rental home portfolios and Built to Rent communities through its Progress Residential Management Services. For more information, please visit www.rentprogress.com

Pretium’s Housing Insights, December 2022

INSIGHTS

Pretium’s Housing Insights, December 2022

December 21, 2022

Summary


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.

Related Content

2021 Single-Family Rental Factsheet

2021 U.S. Housing Outlook

The Strategic Case for CLOs vs. High Yield Corporate Bonds

INSIGHTS

CLO Performance Report, December 2022

December 8, 2022

Summary


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: https://pretium.com/clo-performance-report.
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

PRESS RELEASE

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).

Pretium Congratulates Roberta Goss for Recognition as One of The Most Notable Women on Wall Street by Crain’s New York Business

PRESS RELEASE

Pretium Congratulates Roberta Goss for Recognition as One of The Most Notable Women on Wall Street by Crain’s New York Business

November 30, 2022

New York, NY – November 30, 2022 – Pretium, a specialized investment firm with approximately $50 billion in assets under management, today congratulated Roberta Goss, Senior Managing Director and Head of the Bank Loan and CLO Platform, for being named one of the “Most Notable Women on Wall Street” by Crain’s New York Business. Award recipients are selected by the Crain’s New York editorial team and recognize influential women who have made a positive impact on the New York City financial sector.

In her three years since joining Pretium, Ms. Goss has played an instrumental role leading the development of the firm’s Crown Point collateralized loan obligation (CLO) business and managing investments across its other leveraged loan portfolios. Pretium’s CLO and leveraged loan portfolio total approximately $3 billion in assets.

“We are incredibly proud to join Crain’s in recognizing Roberta’s leadership and contributions both within Pretium and beyond our organization’s walls,” said Don Mullen, Founder and CEO of Pretium. “Her deep expertise in the CLO space, combined with her abilities as a mentor to the many talented members of her team, brings tremendous value to our organization and the industry overall. We congratulate Roberta on this well-deserved honor.”

In addition to Ms. Goss’ responsibilities overseeing Pretium’s portfolio management and marketing efforts for the bank loan and CLO platforms, she is also heavily involved in mentoring future talent within the credit space. Ms. Goss helps manage the firm’s summer internship program with Girls Who Invest, a program that seeks to bring more women into portfolio management, and serves as co-head of Pretium’s Women’s Resource Group, an initiative focused on developing and fostering opportunities for the firm’s female employees. Ms. Goss is also a member of Pretium’s Executive and Finance Committees and was named to the Kayo Conference Series’ “Top 22 in ‘22: Leaders in Credit and Debt Finance.”

To read more about Ms. Goss’ recognition, please visit the Crain’s New York Business website.

About Pretium

Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on secular investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has approximately $50 billion of assets and employs more than 4,000 people across 30 offices, including Dubai, London, Seoul and Sydney. Please visit www.pretium.com for additional information.

Media Contact

Josh Clarkson / Sheila Kulik
pro-pretium@prosek.com

Pretium’s Housing Insights, November 2022

INSIGHTS

Pretium’s Housing Insights, November 2022

November 30, 2022

Summary


The US is already underbuilding housing again, worsening the long-term supply shortage

Single-family housing construction has fallen meaningfully below long-term averages1

Rising rates have achieved the Federal Reserve’s intended effect of dampening housing demand and bringing down the rate of home price and rent growth. But increased demand was just one side of a historic supply-demand imbalance that drove rapid home price and rent growth during the pandemic. The other side was years of underproduction leading up to the pandemic, especially of single-family homes. The Fed induced rate shock may have brought housing supply & demand back into balance; however, it has also prompted builders and developers to sharply reduce rates of construction, particularly of single-family homes. Consensus forecasts call for rates of construction to continue to decline into 2023, which means the pandemic construction surge lasted less than two years. This wasn’t enough to address housing’s pre-pandemic housing shortage, let alone a post-pandemic housing market that could feature structurally higher levels of demand driven by factors such as hybrid work, increased migration, and an increased focus on the home. Longer-term, Pretium expects that the housing supply shortage is likely to remain a central driver of US housing market dynamics and that this supply shortage will be more pronounced for single-family vs. multifamily homes. 

Permits are the first step in the construction process and monthly permits trends provide an early gauge of overall housing construction levels. In October, US housing permits are down nearly 20% from their early 2022 peaks. As shown in Exhibit 1 this decline is almost entirely driven by declining single-family permits that are down roughly 30%; by contrast, multifamily activity is down just 5%. Single-family permits fell below the rate of single-family completions in June, so homebuilder construction backlogs have been declining since then. On the other hand, multifamily permits remain well above multifamily completions and construction backlogs are still increasing. In the near-term single-family homebuilders have curtailed production more sharply than multifamily developers because of the sensitivity of home purchase demand to rising mortgage rates; over the longer-term, Pretium believes that land and housing supply constraints are also more acutely felt in the single-family market. 

 

Starts represent ground-breaking for new homes and provide the longest time series for analyzing levels of construction. As shown in Exhibit 2, the average level of single-family starts since 1959 has been 1.02 mm. October’s single-family starts pace of 0.86 mm is 16% below this long-term average and consensus forecasts project construction levels to continue to decline in 2023. For example, Fannie Mae forecasts that single-family starts will decrease to 0.79 mm in 2023. Multifamily starts remain above their long-term average, but the decrease in single-family activity has been significant enough to drive overall housing starts below their long-term averages. If housing starts begin to recover in 2024 at the same roughly 6% annual growth rate the market experienced from 2013-19, it could take until 2027 for total housing starts to again exceed their long-term averages. This would result in a 20-year period from 2007-2026 where total housing starts only exceeded their long-term average for two years during the pandemic. 


1. Source: US Census, New Residential Construction, as of October 1, 2022; Fannie Mae Housing Forecast, as of October 10, 2022. 

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.

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2021 U.S. Housing Outlook

Pretium Expands Global Business Development Team with Hiring of Rune Sanbeck as Managing Director in London Office

PRESS RELEASE

Pretium Expands Global Business Development Team with Hiring of Rune Sanbeck as Managing Director in London Office

November 14, 2022

Seasoned Executive to Lead Pretium’s European Fundraising Efforts, Business Development Strategy

NEW YORK – November 14, 2022 – Pretium, a specialized investment firm with approximately $50 billion in assets under management, today announced that Rune Sanbeck has joined the firm as Managing Director, Business Development. In this role, Mr. Sanbeck will lead fundraising, client support, and business development strategy for Europe-based allocators and institutional investors, primarily supporting Pretium’s real estate and private credit offerings.

Mr. Sanbeck brings over 20 years of experience and deep expertise identifying, implementing, and executing long-term growth strategies to expand institutional relationships and distribution efforts, with significant experience across private, public, and real asset classes. Most recently, Mr. Sanbeck served as Managing Director and Head of International Business at AIG First Principles. Prior to AIG, Mr. Sanbeck served as Head of EMEA, CEO of Nuveen UK, and Director of Nuveen Europe Asset Management. He has also held senior roles with BlackRock/BGI, Danske Capital, and Dimensional Fund Advisors.

“As we continue to build our diversified investment platform, we view Europe as a long-term strategic priority and are committed to ensuring we have the most talented and driven team in the industry,” said Don Mullen, CEO and Founder of Pretium. “Rune’s multifaceted business experience and global connections will strengthen our presence in Europe, and we are excited to welcome him to our team.”

“Rune’s extensive fundraising experience and growth-oriented track record are a natural fit for Pretium and our London-based business development team,” said Jennifer Strickland, Senior Managing Director and Head of Business Development at Pretium. “Rune has a deep network of relationships, an intimate understanding of the European institutional investment landscape, and a seasoned business acumen that we believe will enhance our capabilities to support new and existing clients.”

“Joining Pretium is an incredible opportunity to be part of one of the strongest and most innovative teams in the industry,” Mr. Sanbeck said. “I look forward to working alongside Eugenie Dadachpour in London and with colleagues around the world to support and expand Pretium’s network of institutional clients, while executing on long-term fundraising objectives for real estate and private credit.”

About Pretium

Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on secular investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has approximately $50 billion of assets and employs more than 4,000 people across 30 offices, including Dubai, London, Seoul and Sydney. Please visit www.pretium.com for additional information.

Contacts

Jon Keehner / Kate Thompson / Lyle Weston
Joele Frank, Wilkinson Brimmer Katcher
212-355-4449
Media-SFR@pretium.com

CLO Equity Delivered Strong Returns Through the Financial Crisis Period

INSIGHTS

CLO Performance Report, November 2022

November 10, 2022

Summary


CLO equity delivered strong returns through the financial crisis period

During the Global Financial Crisis (GFC) episode, default rates on the bonds issued by collateralized loan obligations, or CLOs, were far lower than those for other structured credit products such as CDOs, RMBS, CMBS, and ABS. Legacy structured finance CDOs (SF CDOs) and subprime RMBS had average annualized impairment rates of 24.1% and 10.0% respectively, vs. just 0.2% for CLO debt tranches (Exhibit 1). CLO equity tranches also performed well through the GFC. A study by researchers at the Federal Reserve Bank of Philadelphia finds that the median CLO equity tranches issued during 2005-2007 earned 13%-18% lifetime IRRs (Exhibit 2). In contrast, most of the equity and debt securities from RMBS, CMBS, and CDO transactions from the same period experienced negative returns.

How were CLOs able to avoid the distress experienced by so many seemingly similar sectors during the financial crisis? We highlight three factors that contributed to the success of CLO equity and that differentiated CLOs relative to other structured finance asset classes of this era:

  • Long-term funding: CLO equity tranches achieve leverage via long-term funding at fixed credit spreads. As a result, CLO managers were not forced to sell loan assets in the periods of deep market distress experienced during the GFC. By contrast, structures that relied on shorter term funding instruments (e.g., repo financing) faced margin calls and thus were forced to sell assets at distressed prices, eroding returns.

  • Benefits of senior-secured corporate lending: The business loans that back CLOs are senior in the issuers’ capital structures and are typically secured by real estate or other corporate assets. As a result, the recovery rates on loans have historically been much higher than for high yield corporate bonds, say, which are typically junior and unsecured. The high recovery rates on defaulted CLO loan assets in turn helped to limit the losses experienced by CLO equity and debt investors during the financial crisis period.

  • Industry diversification: CLO collateral pools are highly diversified across industry sectors. Most prospectuses limit the fraction of total pool balance that can be allocated to any one sector or obligor. By contrast, many other structured finance products were backed by highly similar assets (such as mezzanine subprime RMBS bond tranches in the case of CDOs)1, which all defaulted at the same time when US real estate prices declined and mortgage foreclosure rates rose.

We believe that the factors above which contributed to solid CLO equity returns during the financial crisis period continue to be broadly relevant going forward. While past performance is never a guarantee of future returns, the resilience shown by CLO equity through the historically extreme global financial crisis scenario helps contribute to confidence that the strategy can offer positive returns even if, as we expect, economic volatility remains elevated over the medium-term horizon.


1. “Collateral Damage: Sizing and Assessing the Subprime CDO Crisis”, Federal Reserve Bank of Philadelphia Working Paper No. 11-30/R.

 

June 2022

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