
It’s easy to see why multifamily property is becoming an increasingly important component of a private investor’s portfolio. Surging workforce housing demand, continued economic growth, constrained single-family housing development, and rising housing costs have created extremely favorable investment conditions.
Today, Class B multifamily properties often trade at higher yields than institutional properties, offer an abundant range of asset choices, and fall below the investment parameters of large institutional investors. “That creates an attractive opportunity zone for private investors,” says J. Scott Croul of Red Capital Group, a leading financial services provider and the nation’s No. 1 FHA/HUD multifamily and seniors housing lender from 2012 to 2017.
What other factors should investors consider? Croul offers these thoughts:
When did investor interest in Class B multifamily property take off?
You can trace the trend line to 2014 when Freddie Mac introduced its Small Balance Loan (SBL) program. Freddie Mac SBL liquidity transformed the sector, with loan volume surging from $4.6 million in 2014 to $6.9 billion last year. Part of the program’s appeal is the certainty of execution, ease of process, and the fast response times at a low cost, along with several other innovative features. The most significant advantage is the interest rate–hold feature. It takes rate risk off the table.
What should a multifamily private investor look for in a lending partner?
An exceptional listener. The lender should take time to consult with the investor to determine their goals and needs. What follows should be a solution based on the property attributes and tailored to the investor’s objectives. A depth of experience is also key to help ensure a seamless process, free from unwanted surprises. Can the lender deliver the desired terms with speed and efficiency? Do they anticipate and mitigate issues that could impact SBL closing or terms? Does your lender operate with a sense of urgency?
What differentiates SBL lenders?
Today, only a handful of SBL lenders are approved as both Freddie Mac SBL and Fannie Mae Multifamily SML (Small Mortgage Loan) providers. That distinction is important. Each program has unique attributes, so it presents the investor with a wider range of lending options.
Today’s upward-trending interest rates are suited to the Freddie Mac SBL rate-hold feature. For example, that product, with our proprietary SBL quoting technology, can enable an investor to size and price a loan and set the interest rate on the same day.
Any examples?
We recently closed a Freddie Mac SBL in New Jersey that set the interest rate on April 13, when the 7-Year Treasury Note was 2.78%. That rate held while 7-Year yields climbed to over 3.04% in mid-May. Sixty days after application, we rate-locked with Freddie Mac and closed the loan the same day through our parent, ORIX USA, without using a warehouse line to accommodate the investor’s accelerated closing schedule. At rate-lock, the 7-Year was up 12 basis points from the application date. The investor received the lower rate quoted at application.
Where should multifamily investors go to learn more?
They’re welcome to contact me directly, at (949) 812-7962, or redcapitalgroup.com/contact. Visit us online at redcapitalgroup.com/property-specialties/small-balance-multifamily-loans.
J. Scott Croul is the senior managing director and head of multifamily small loan originations at Red Capital Group (RED). He has 30 years of experience in mortgage lending and operations. Prior to joining RED, Scott was head of production and sales for the Western region for Freddie Mac Multifamily, leading the region from $3.2 billion in annual volume to more than $13.8 billion over seven years. Prior to Freddie Mac, he led the Pacific Southwest region for John Hancock.