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he product builders struggle most to deliver is affordable housing
for workers and first-time homebuyers. As a result, many of today’s
potential buyers are priced out of the single-family home-purchase
market. Combined with a current lack of supply, these factors place
increasing pressure on the multifamily rental sphere, where rents
also have been steadily climbing for many years.
Research from Reis Inc., a commercial real estate data provider,
shows that middle-income renters are increasingly vulnerable to rising
rents, as rates for nonluxury apartments have escalated 19 percent
over the past five years. Millennials also are struggling with affordability. In a recent review of U.S. Census Bureau data, Zillow found that,
among Americans ages 24 to 36, 14 percent lived with a parent in
2005. By 2016, that number had climbed to 23 percent, with the
price of housing cited as the primary reason for living with a parent.
The Joint Center for Housing Studies at Harvard University also
has explored affordability issues. In its “State of the Nation’s Housing
2018” report, the center found a serious shortage of affordable
housing in the United States. Nationwide, median rent rose 20 percent faster than inflation from 1990 to 2016 and the
median home price climbed 41 percent faster than inflation during the same period.
The capital-markets arena has been a contributor to the country’s affordability crisis — intentionally or not. During the
post-recession era, many banks have been strapped with regulations that limit their ability to lend, making it harder for
many commercial real estate deals to get done.
The small-balance debt sector, which is roughly defined as transaction sizes of $1 million to $15 million, has the potential
to greatly influence housing affordability and availability through the finance and refinance of workforce and affordable
multifamily properties. Yet, this piece of the debt market continues to be underserved.
Generally speaking, banks aren’t offering small-balance lending programs on a national scale. For commercial mortgage
brokers with many clients across multiple regions, this is an inefficient model.
To help fill the gap, some specialized private lenders have stepped in. Not all small-balance lenders are created
equally, however. Some struggle with efficiency in their loan processes, which directly influences their loan-to-close timeline and, in turn, burdens brokers and their borrower clientele.
Acquisition loans grow
Although many banks can’t compete with small-balance lending on a national platform, smaller community and regional
banks are actively lending in their respective regions, despite the ongoing impacts of regulations. Recent activities in
some markets indicate a significant shift away from a deal pipeline centered on refinancing and toward more acquisition
deals. This may be related to rising interest rates, which have slowed the rush of borrowers seeking to refinance.
Acquisition loans also may be in higher demand because there is money available for these investments. Additionally,
even though rates have gone up, seller expectations regarding sales prices haven’t adjusted accordingly, making acquisitions
There are many factors affecting the lack of quality affordable housing nationwide. In some places, such as California,
which often leads the nation in proposing and adopting aggressive environmental measures, costs have risen so significantly
for homebuilders that they can’t feasibly deliver new units at first-time homebuyer price points.
The resulting lack of supply pushes many would-be buyers into the rental pool. Likewise, many other cities across the country,
despite knowing that they lack enough workforce housing, aren’t approving enough new rental projects to cover demand.
This forces renters into older existing properties or housing too far from their workplaces to be ideal for daily living.
Pat Jackson is CEO of Sabal Capital Partners LLC, a lender specializing in the small-balance space.
Sabal’s proprietary SNAP lending platform enables automation and efficiency in the lending process,
two key drivers of the company’s continued high-volume record of closings.
Reach Jackson at email@example.com.