Property Owners Utilize Freddie Mac’s Small Balance Loans to Grow Workforce Housing Market
At the end of 2014, Freddie Mac launched its new Small Balance Loan (SBL) program in an effort to facilitate access to affordable capital for owners of small apartment buildings with five or more units. The SBL features a streamlined process and less paperwork than Freddie Mac’s traditional, higher balance programs. Additionally, it substantially compresses the previously high origination costs and interest rates of small balance loan products and makes them competitive with those of larger loans.
According to Multifamily Executive, as of mid-2018, Freddie Mac had financed over 7,200 SBL loans, ranging from $1 million to $7.5 million and totaling approximately $18 billion.
The SBL program offers six different non-recourse financing solutions across multiple fixed-rate and hybrid (fixed to float) products with 30-year amortization and up to 80% loan to value in certain markets. The loans can be used for acquisition or refinances and have the ability to offer interest-only periods. Most property types are eligible for the program with the exception of those with a concentration of 50% or more student housing. Properties must generally demonstrate at least 85-90% occupancy over the previous 90 days, with certain exceptions.
David Cardwell, the senior director of SBL production and sales at Freddie Mac Multifamily noted the program’s effectiveness in addressing the country’s housing affordability crisis. Approximately 92% of the SBL loans cover properties that are affordable for households earning at or below 100% of the area median income.
“We know that the tenants we’re serving are typically hourly wage earners and oftentimes hold multiple jobs, and this is housing that’s critical to the support network in just about every city of every size,” says Cardwell. “It’s not sexy real estate, but the truth is, it’s basic, affordable, safe, and decent housing.”
“Without this program and the bank financing and other financing that goes into this core product type, you need the money to preserve it. A lot of what we do is provide capital to put back into the asset. It’s as much about preserving workforce housing as it is financing the growth of supply,” Cardwell adds.
Cardwell says that demand is strong for the SBL product and that a lot of investors are looking to the small, multifamily “workforce housing” asset type because it’s available, reasonable in terms of investment, manageable because there aren’t as many amenities, well-located, typically along good transportation networks, and functional.
“We have seen a definite surge in popularity with the SBL program,” says Matthew Brown, principal at Brown Multifamily Advisors. “Buyers of workforce housing properties are utilizing this financing tool to successfully acquire and implement improvement plans that reposition and sustain assets for long-term holds or short-term dispositions.”
Contact Brown Multifamily Advisors to learn more about workforce housing investment opportunities and financing multifamily real estate through some of our trusted partners.