Will efficiency projects get sliced and diced like mortgages, car loans and rental units? Only if the industry gets serious about standards.
For proof of how securitization can grow a market really quickly, consider the single-family home rental market.
After the 2008 financial crisis (which was, in large part, caused by trading of very risky securities), mortgage underwriters were sitting on a lot of housing stock. Seeing an opportunity, institutional investors bought thousands of homes, rented them out, and then bundled the rental payments into securities for sale on the secondary market.
Last October, the private equity firm Blackstone Group sold the first securitized single-family housing bond, a $479 million package of rent payments from properties it now owns. That started a rush of activity, and investors purchased tens of thousands of homes with the intention of bundling the rental payments and selling slices of the bonds to banks, insurance companies and pension funds.
In 2014, the market will be worth about $5 billion. Next year, it could be worth $20 billion. And some are projecting a trillion-dollar market.
"It doesn't take much. It took just one [issuance] to break the levy," said Dan Sullivan, an expert on structured bonds at PricewaterhouseCoopers. "This ultimately could be the same sustainable source of financing for efficiency."