
Trent Brooks has a good vantage point in the multifamily industry. The 28-year-old-firm he directs, RED Mortgage Capital, has earned an impressive reputation as the nation’s leading FHA/HUD multifamily and seniors lender five years running.
A strong economy, positive job outlook, and a clearer direction on the new tax laws provide encouraging fundamentals. How will this confluence of factors impact multifamily housing through 2018 and beyond?
What are the opportunities and challenges? Brooks recently sat down and shared his views:
Suburban Class B multifamily assets have gained strong investor interest. Is the focus justified?
It is. We think one of the biggest growth opportunities for multifamily investors is the acquisition/recapitalization of somewhat older multifamily assets—workforce housing—to invest in the extension of the economic life of these properties through thoughtful renovation investments. It’s a very attractive proposition because the real estate is solid and often provides a tangible and more durable upside.
The investor receives a good return using a proven strategy. Residents go home each night to an upgraded residence. The community benefits from the preservation of naturally affordable housing. It’s a true win-win-win.
What else is likely to drive Class B demand?
There are compelling reasons for multifamily investors to renovate Class B housing. These investors can often finance the asset recapitalization plan. At RED Capital, we routinely model acquisition–rehab and refinance/recap scenarios to help identify the optimal debt and equity structure.
In addition to a full complement of permanent debt products, we provide in-house bridge financing options to facilitate property improvement and preservation. Most multifamily owners can also receive enhanced financing terms by completing green improvements that meet GSE guidelines. There are a surprising number of economic advantages for owners with strategic renovation plans. It continues to be a good time to be a multifamily owner–operator–investor.
What do you think explains the demographic shift to lower-density, suburban apartment communities?
People are looking for community and a better way to connect. Many “middle-age” apartment communities are located closer to schools, workforce employers, and lifestyle amenities. These factors, combined with the natural affordability, creates demand that exceeds supply. Workforce is by far the largest segment of the renter community.
How great is the need?
The overall percentage of household income spent on rental housing is not sustainable. Preserving naturally occurring affordable housing is part of the solution. In terms of supply, we’ve seen most multifamily development at different ends of the continuum over the past 15-plus years: Class A at one end and subsidized affordable housing at the other. We haven’t seen as much new workforce housing development in the middle of this development barbell. The returns may be somewhat less in the Class B space compared with some Class A projections, but these returns are often more attractive to many longer-term investors.
How is your company investing in the future?
Technology is a key element of our strategic plan. We’ve recently transformed our entire servicing platform with the latest technology. This enables us to enhance our service, increase efficiency, and provide our investors even better asset management and surveillance capabilities. In the near term, we’ll also be re-engineering our entire front-end screening, underwriting, and closing processes.
Learn more about RED Mortgage Capital.
Trent Brooks is the president and national head of production for RED Mortgage Capital, LLC, the mortgage banking arm of RED Capital Group. Brooks has over 30 years of experience in executive roles across the CRE industry.