With quality financing programs, smaller operators and apartment communities can deliver affordable Class B and C communities to families, while providing just basic amenities.
After years of rising rents across the country, apartments that offer both space and affordable rents for working families are becoming popular – and necessary – in the multifamily space.
“Traditionally, smaller buildings have been the front lines in preserving the nation’s workforce housing stock, because smaller properties are typically more affordable to renters,” said Stephen Johnson, vice president of Freddie Mac’s Small Balance Loans (SBL) business.
That’s why Freddie Mac’s SBL program targets small apartment buildings of five to 50 units, on deals ranging from $1 million to $7.5 million.
“Apartment properties with five to 50 units provide affordable homes to a major portion of the nation's moderate- and low-income renters,” said Johnson. “And our SBL program helps to facilitate access to affordable capital for these smaller Borrowers by providing a streamlined process and paperwork which drives down costs.”
According to Johnson, the organization financed more than 100,000 units of affordable and workforce housing last year. These units likely provide housing for working families, including nurses, police officers and firefighters.
These units offer more affordable rents to families, while providing only basic amenities, to help keep operating costs down. And while it’s true that higher resident turnover and deferred maintenance can be a challenge for these property classes, these types of buildings also generally offer more space and bedrooms. That means they can appeal to working-class families, who may be motivated to move less often, and provide a steady income stream to owners.
Freddie Mac’s SBL program also helps owners and operators keep rents low by providing short and long-term financing, which means debt-service will be predictable, as well as non-recourse and interest-only loans, and up to 80 percent loan-to-value offerings in certain markets.
“Because we have a team that solely focuses on small balance loans, we put in the extra legwork on property inspections, repair needs and conditions in the local market to ensure our financing best equips the Borrower to keep rents affordable,” said Johnson.
Borrowers also benefit from coupon pricing and certainty-of-execution to make sure a deal goes through. By providing a steady flow of capital to a market that often lacks liquidity, Freddie Mac’s SBL program makes it more likely for mom-and-pop owners to continue to maintain their buildings, rather than cash out.
“Helping Americans in underserved communities has been a core component of our broader community mission since our founding 45 years ago,” said Johnson. “Historically, about 90 percent of the rental units financed by our multifamily business went to rental properties supporting working families earning at or below 100 percent of local median income.”
In other words, the affordable apartments are getting their day in the multifamily financing sun, and with the backing of an organization like Freddie Mac, Borrowers don’t have to go it alone.