In the latest sign of confidence in the nation's housing market, a newly formed local company will join the growing number of firms nationwide that are buying undervalued single-family houses that will be held for rental and resale.
Two Harbors Investment Corp. said Tuesday that it will establish a Minnetonka-based real estate investment trust. The REIT, called Silver Bay Realty Trust, will invest in thousands of single-family residential properties around the country.
Silver Bay disclosed in a filing with the Securities and Exchange Commission that it intends to sell 13,250,000 shares of stock in an initial public offering. The REIT, which will also be based in Minnetonka, plans to price the shares between $18 and $20, which would raise $238 million to $265 million. Company officials declined to talk about the deal.
Silver Bay will be focused on acquisition, renovation, leasing and management of single-family homes. Along with the offering, Silver Bay will acquire portfolios of single-family homes from both Two Harbors Investment and Provident Real Estate Advisors.
In the first quarter of 2012, Minnetonka-based Two Harbors began acquiring a portfolio of single-family residential properties to rent for income and hold for investment. Those include properties in Phoenix; Tampa; Orlando; Atlanta; Las Vegas; Tucson, Ariz.; northern and southern California; Charlotte, N.C.; and, most recently, Dallas, at a total cost of more than $178.8 million.
Acquiring nearly 4,000 homes
As a part of the offering, Silver Bay will acquire more than 3,100 single-family residential properties from Two Harbors and also about 880 single-family homes from entities controlled by Provident.
"We believe Two Harbors shareholders are best served by the creation of a standalone, pure-play, single-family residential property REIT,'' said Thomas Siering, Two Harbors president and CEO,
Two Harbors said in September that it was forming a REIT to own and manage single-family homes, and Silver Bay made an initial filing with the SEC then. But the filing did not include details on the number of shares to be offered or the amount raised.
Silver Bay will be externally managed by PRCM Real Estate Advisers, a joint venture between Pine River Domestic Management and Provident. Another affiliate of Pine River also manages Two Harbors Investment Corp., a REIT that trades under the symbol TWO.
Silver Bay would trade on the New York Stock Exchange under the symbol SBY.
Proceeds of the offering will be used to acquire more single-family properties and to pay earlier Provident shareholders.
Response to rising demand
The Blackstone Group and Colony Capital have led efforts to raise as much as $8 billion to buy as many as 80,000 single-family homes to manage as rentals, taking advantage of rising demand for leasing and property prices that are about 30 percent below their peak, according to Jade Rahmani, an analyst with Keefe, Bruyette & Woods Inc.
Blackstone has spent about $100 million a week on single-family homes.
"It's a giant asset class," Todd Eagle, a managing director at Goldman Sachs Group Inc., said at a conference last week in Scottsdale, Ariz. "It represents an attractive investing opportunity that doesn't exist today."
Two Harbors is a REIT that focuses on mortgage-backed securities and will own about 48 percent of Silver Bay after the offering, according to the filing.
As part of the deal, Two Harbors expects to contribute $50 million in cash to Silver Bay.
Credit Suisse Group AG, Bank of America Corp. and JPMorgan Chase & Co. are leading the share sale.
Already, Reven Housing REIT Inc. and American Residential Properties Inc. have begun investing in single-family properties. Analysts say that two or three such companies will go public in 2013.
Patrick Kennedy • 612-673-7926 Bloomberg News contributed to this report.