
To understand the owner opportunities associated with workforce housing, a visit to Santa Ana, Calif. is instructive.
There you’ll find Warwick Square Apartments, a 49-year-old, 500-unit community. Not so long ago annual resident turnover at Warwick Square was 100 percent. Today? It’s totally leased-up and annual turnover is about 5 percent, according to Inna Khidekel, managing director of capital markets for Salt Lake City-based Bridge Investment Group, an owner-operator of more than 30,000 apartment units nationwide, including Warwick Square.
Fierce Asset Loyalty
That kind of fierce, “will-not-move” loyalty is often typical of residents in Class B and C rental properties, especially in today’s rental marketplace. Khidekel says since the year 2000 “… the share of affordable housing deliveries has been cut in half. Today less than 1 in 10 deliveries are affordable. In the early 2000’s, Class B represented about a half of all multifamily inventory and deliveries. Today, it’s less than a quarter.”


For Khidekel and her colleagues at Bridge, naturally occurring affordable housing represents a marketplace rife with investor opportunity. Among the operating characteristics Khidekel likes are recession-resistance, high occupancy (Class A multifamily vacancy rates are nearly double those of Class B and C, according to Reis), high and stable cash flows, which all contributes to the sector’s strength as a valuable diversifier in real estate portfolios.
Freddie Mac’s Rental Affordability Initiative
On Tuesday, August 7th, 2018, another important advantage gained widespread notice: The nation’s largest backer of apartment loans announced a low-cost loan program to multifamily property owners designed to keep rents at affordable levels for working families over the term of the loan. No local, state, or federal subsidy dollars are involved.
Freddie Mac’s new Mezzanine Loan pilot provides favorable pricing and additional debt capital to multifamily owners in exchange for the owner’s pledge to limit rent growth on 80 percent of the units. Routine annual monitoring of rents ensures owner compliance. Mezzanine financing operates as a subordinate loan, delivering additional debt capital necessary to fill in the gap between borrower equity and the first lien mortgage loan amount.
Social Impact
Bridge’s interest in workforce housing made them a natural partner for Freddie Mac’s Social Impact pilot, a spiritual predecessor to the Mezzanine Loan pilot.
Earlier this year, Bridge closed on a 352-unit apartment community near Tampa, Fla. Khidekel says the Tampa-area property is a great illustration of the workforce housing need. “The residents living there can no longer afford to live in Tampa, 23 miles to the west. Eighty-two percent of the apartment community’s population earn under 80 percent of the area median annual income, which is $63,200,” Khidekel says. Rents are currently 19 percent of household income on average, well below what many working families pay elsewhere.
Housing Peace of Mind
Freddie Mac’s initiatives couldn’t have come at a better time. “These initiatives give us the opportunity to test new solutions to a persistent challenge,” observes David Brickman, Freddie Mac’s executive vice president and head of Freddie Mac Multifamily.
Residents at the suburban Tampa apartment community and at Warwick Square Apartments can look forward to a wide array of living and social improvements. The biggest improvement, of course, is an affordable rent they can count on for years to come.
For more on affordablity for low-income and working families.