“With aggregating permanent loans, a
lender pledges to fund a series of stabilized
transactions over a specified period.”
To reduce red tape and maximize total return, today’s SFR
borrowers are increasingly turning to nonbank lenders that
offer greater flexibility and terms better suited to this asset
class. Free from capital and credit restraints, nonbanks offer
products designed to match the market realities and strategies
of SFR investors.
A 12-month bridge loan paired with a more permanent
financing structure, for example, addresses both immediate
and long-term plans. Bridge loans minimize underwriting
delays and fund the time-intensive work needed to convert
existing — and often empty — single-family homes or townhomes into stabilized rental properties. Upon expiration of
the bridge loan, permanent financing with competitive terms
can take effect. Because these loans are nonrecourse, personal
assets are unencumbered and interest costs are lower.
A second loan structure supports borrowers who plan
to build their portfolios in stages according to a predetermined time frame. With aggregating permanent loans, a
lender pledges to fund a series of stabilized transactions
over a specified period. Borrowers make payments only
on the principal used as each new transaction closes.
Commercial mortgage brokers also can help
investors identify different levels of potential risk and return within today’s diversified
SFR market. These include assets with vastly
different value characteristics. Some of the
highest risk-and-return opportunities
are available in urban frontiers and
economically distressed regions.
Returns from well-timed and carefully targeted SFR investments in older, industrial-heavy cities, for example, can
match or even exceed earnings from large multifamily
developments in top-tier markets. Depending on the market,
Class B multifamily properties are producing capitalization
rates in the range of 5 percent to 6 percent, while comparable
SFR portfolios have cap rates of 6 percent to 9 percent.
As a result of the recent entry of the government-sponsored
enterprises, or GSEs, into middle-market SFR financing,
“nonrecourse” and “recurring capital” are the market’s
current buzzwords. Under Freddie Mac’s new affordable-housing initiative, low-cost SFR financing is available for
experienced investors who own at least 50 properties.
Freddie Mac is targeting the larger owners in this space
by offering a minimum loan size of $5 million. Freddie has
designated nine lenders as authorized sellers and servicers
to help broaden the investor base and institutionalize a
previously illiquid, distressed housing sector.
n n n
As investment options for single-family rentals continue to
diversify, commercial mortgage brokers will benefit. They
can provide their clients with highly accurate pricing and
occupancy trends. To complete their due diligence, investors
also need mortgage brokers to help them identify local
pockets of supply where value-creation opportunities may
have been overlooked.
Lastly, commercial mortgage brokers can play an important role in matching financing packages to an investor’s
risk parameters. For many SFR players eager to rehabilitate
older properties or build new rental homes, nailing down a
consistent funding platform is pivotal for growth. n
Sean Tierney is executive vice president of the
single-family rental-loan team at A10 Capital. He
is responsible for originating single-family rental
portfolio loans through Freddie Mac’s new pilot
program with an emphasis on institutional clients.
Most recently, he was vice president of business development at
Clearwater Advisors, working with corporate cash portfolios, state
and local governments, and insurance companies. Tierney holds
degrees in economics and business administration from St. Mary’s
College in California. Reach Tierney at email@example.com.
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