
In less than four years, Freddie Mac Multifamily has tripled the volume of its Small-Balance Loan (SBL) business, which focuses on a streamlined process and paperwork to facilitate access to affordable capital for owners of small apartment buildings with five or more units.
Launched at the end of 2014, the business has financed over 7,200 loans, ranging from $1 million to $7.5 million, totaling about $18 billion. In 2018 alone, the SBL team anticipates closing more than 3,000 loans.

“The reason for growth is market demand for a really strong product and a seller-servicer network that’s tripled in capacity, maybe even more than that,” says David Cardwell, senior director, production and sales, for SBL at Freddie Mac Multifamily. “We’re seeing more investment this year in the seller-servicer network. They’ve broadened their footprints, and the marketplace has been receptive to the product. If you have a good product and are growing your sales teams, you’re going to have success.”
According to Freddie Mac Multifamily, the flexible loan offering provides six different financing solutions across hybrid (fixed-to-float) and fixed-rate products, with 30-year amortization and up to 80% loan to value in certain markets.
Cardwell says the main competition for the SBL business are community banks, insurance companies, and national and regional banks.
“The one thing we offer that the other institutions don’t is a variety of products that are longer term. We’ve also been able to make enhancements to the programs, and those have been to get the timing more compatible with bank executions. It also gives the borrow nonrecourse capital.”
Strong Partnerships Underlie Program Strength
Greystone, the first lender to close an SBL loan, in 2014, has been a strong partner, hitting a milestone earlier this year, closing over 1,000 SBL loans since the program’s inception.

“[Freddie Mac modifies] the program to meet the needs of borrowers and lenders and continuously evolves the program so it isn’t stagnant. They roll up their sleeves and say, ‘We’re in this together,’ ” says Rick Wolf, head of Greystone’s small-balance loan production. “It boils down to the fact that they’ve created a great product and are willing to change to meet the needs of the market and lenders.”
SBL seller-servicer Basis Investment Group also touts Freddie Mac Multifamily’s commitment to small multifamily properties.
“This program really has been innovative in providing a dedicated source of liquidity to a space that’s often been overlooked by larger institutions,” says Tammy K. Jones, co-founder and CEO of Basis Investment Group.
She adds that the documentation is straightforward and not intimidating for a lot of small multifamily owners. “Time is money for everybody. The fact that Freddie has enabled us to create a process where you can close quickly is super important.”

Helping Tackle Affordability
In addition to providing a needed source of financing for small multifamily properties, the SBL business is playing a larger role in addressing the country’s affordability crisis.
Ninety-two percent of the SBL business loans, involving approximately 212,000 units, cover properties 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.
Freddie Mac Multifamily’s SBL business has allowed New York City–based Basis Investment Group, a certified minority- and woman-owned company, to fulfill its dual mission of serving as an investor and lender across the capital stack for multifamily and commercial real estate assets and fighting the affordability crisis.
“We really do have a problem in ensuring that we have affordable housing for American families. The fact that this [program] provides liquidity ensures investment in smaller properties. It’s not the only answer, but it’s part of the solution,” says Jones.
One recent example Jones shares involves a deal with an African-American owner who has approximately 500 multifamily units in the Detroit area.
“His strategy was to go into a market, like Detroit, that’s screaming for investment and has an affordability crisis,” says Jones. The owner, Jones recalls, upgraded a 43-unit community by investing $11,000 per unit in items such as new appliances, electrical systems, floors, and roofs.
“Then, we were able to provide the ability to refinance this property after the owner understood this market and created value. He can take that equity and invest again. We’re going to do two more deals with him that are in our pipeline.
“Why did he come back to us? We could customize a package for him and show him certainty of execution. We were able to ensure that he understood the process. I couldn’t have done that without Freddie Mac’s partnership,” says Jones. “We went to Detroit, and we went there with a qualified minority owner and operator who is now on a trajectory for further success.”
Cardwell adds that a lot of people try to categorize these small multifamily properties as Class B and C, but that that’s somewhat unfair, since the categories of A, B, and C are typically used in terms of larger rental communities and the quality of those communities based on their amenities, how well the properties are maintained, their location, and so forth.
Cardwell says demand is strong for the SBL product and a lot of investors are looking to this 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.
“It serves a wide range of tenants, from those who are just getting started in life to those who are core to support networks and services in cities. A lot of the tenants who rent these properties aren’t as mobile as those in larger apartment communities. We see more critical need for preserving these types of properties,” adds Cardwell.
Freddie Mac Loan Labs
Freddie Mac Multifamily is also pushing the envelope by shortening loan commitment times with its SBL Loan Labs, a day-and-a-half pop-up event that offers seller-servicers the opportunity to submit loans and speak face-to-face with producers, underwriters, and in-house counsel from Freddie Mac. At the end of its 2017 Loan Lab, the SBL team committed to 61 small-apartment loans, with a total volume of $163 million—tripling the volume and more than doubling the loan count of the 2016, inaugural event.
Freddie’s next Loan Lab will be held in New York in July, and the team is planning to do three events in 2019 as opposed to one centralized pop-up.
Greystone participated in Freddie’s Loan Lab last year. “That’s very innovative. Freddie Mac is proving that it’s not just an institution that thinks one way and does things only one way. They’re proving to the market they can think differently,” says Greystone’s Wolf.