“Enhanced liquidity for
rental properties facilitates
boosting sales and
for tenants earning less than 100 percent of AMI — less than the 81 percent
share for Fannie’s multifamily acquisitions in 2017.
On the heels of the Invitation Homes deal, Freddie Mac planned a comparable transaction but, in this case, had an increased focus on affordability.
In December 2017, Freddie Mac guaranteed 80 percent of a $200 million
multi-borrower securitization, with 94 percent of the properties classified
as affordable for tenants earning less than 100 percent of AMI. Through this
transaction, Freddie Mac was able to jumpstart its $1 billion commitment
to the SFR sector and did it in a manner that was consistent with its overall
Concurrent with that securitization, Freddie also launched a pilot program
to purchase SFR loans of $5 million or more that are predominantly collateralized
by affordable housing. It has named nine designated lenders to source this
product and closed its first loan this past January. The collateral supporting
the $11 million loan was 100 percent affordable for tenants earning up to
100 percent of AMI. Fannie Mae also has received FHFA approval for its own
pilot program. Based on their increasing involvement, the GSEs appear to
officially be active participants in the SFR financing market.
What will GSE involvement do for the SFR industry? A glance back at the
owner-occupied single-family and multifamily mortgage markets may provide
a clue. Both of those financing sectors have seen steady growth with the
backstop of taxpayer-supported purchases and guarantees.
With Freddie Mac (and Fannie Mae likely soon to join them) buying more
qualified SFR mortgages, there should be enhanced liquidity for these properties.
This should attract more investors to the market and more lenders to finance
them. Ultimately, this may lead to consolidation of a fragmented market with
larger, more sophisticated operators amassing diversified portfolios of properties.
An active SFR market should benefit the mortgage brokerage community
as well. Enhanced liquidity for rental properties facilitates investor participation,
boosting sales and property values. Historically, nonowner-occupied residential
properties had limited options for financing, especially on a nonrecourse
basis. The market for permanent financing of SFR-property portfolios is now
well-established and growing. This also creates opportunities for the mortgage
banking community, which had not previously considered SFR loans to be part
of the commercial mortgage spectrum. With SFR loan portfolios now encompassing assets worth many millions of dollars, the revenue opportunities for
commercial mortgage brokers are much more obvious.
Another potential benefit of institutionalizing the SFR industry could be
the standardization of leases, financial statements and loan documentation.
Freddie Mac, for example, has developed loan documents that take the best
from existing precedents, and these will be the prototypes for new entrants
into the market. The Mortgage Bankers Association and CRE Finance Council
are now including SFR financing in their programming and advocacy efforts,
and this should help create new market standards. Already, SFR securitizations
are conforming to the CRE Finance Council’s investor-reporting package.
n n n
Ultimately, the beneficiaries of GSE involvement in the SFR market will be
tenants themselves. An active secondary mortgage market, GSE guarantees
and increased competition among lenders should lower the cost of debt for
property owners. Consequently, cheaper financing should put less upward
pressure on rents.
Additionally, abundant debt capital also may result in an increase in the
rental-housing stock across the U.S., which could make an already-large SFR
market even bigger. In the end, more affordable housing seems to be a goal
that everyone can support. n
<< Rentals continued from Page 32
34 Scotsman Guide Commercial Edition | ScotsmanGuide.com | July 2018
Christopher Hoeffel is the chief financial officer of CoreVest Finance, the leading lender to residential real estate investors
nationwide. He has more than 30 years of experience representing top financial institutions. Previously, Hoeffel was managing director
and head of real estate debt investments at Investcorp. He received a bachelor’s degree in business administration from Georgetown
University and an MBA from the Wharton School at the University of Pennsylvania. Reach Hoeffel at firstname.lastname@example.org.