Sabal Investment Holdings recently closed a series of five B-piece investments, representing approximately $2 billion in collateral balance, across three Freddie Mac Multifamily programs. The programs include SB-Deals^®, K-Deals^®, and Q-Deals^®. All investments were made by funds managed by the firm.

“In a time of heightened interest rates, bank distress and restricted lending, Sabal is proud to continue to pursue investment opportunities within the workforce and affordable rental housing finance arena,” says Drake Ayres, managing director. “Not only has this class of assets historically weathered adverse economic conditions and hedged inflationary concerns better than others, but it’s a socially responsible investment.”

Three of the SB-Deals are backed by Freddie Mac Multifamily Small Balance Loans (SBLs) and total $90 million in bond balance across $933 million in collateral balance and 338 loans. With SB Certificates, Freddie Mac guarantees senior classes of securities issued by third-party trusts and backed by SBLs. The SBLs are underwritten by the agency at the time of origination for sale to Freddie Mac by a specialty network of lenders or SBL lenders. Freddie Mac may also purchase for securitization seasoned SBL loan pools in whole loan sales.

Within the K-Deals program, Sabal closed one B-piece investment within the KF series. The investment is backed by conventional, stabilized multifamily loans with floating rates and totals $58 million in bond balance across $769 million in collateral balance and 20 loans. K-Deals feature a range of investor options with stable cash flows and a structured credit enhancement. They include guaranteed senior and interest-only classes and the related underlying private label trust includes unguaranteed subordinate and interest-only bonds. The agency’s diligence is aimed at managing the terms and credit quality of the underlying loans and composition of the securities.

The fifth announced B-piece investment was completed within the Q-Deals program and totaled $55 million in bond balance across $304 million in collateral balance and 11 loans. Multifamily Q Certificates are structured through securities backed by stabilized mortgage loans not underwritten by Freddie Mac at the time of origination and loans may not have been purchased by Freddie Mac prior to securitization.

“As a mission-driven agency committed to providing liquidity in this important sector of housing, even during periods of economic uncertainty, Freddie Mac’s flow of quality underwritten B-piece product is attractive to us,” adds Ayres.

The affordable and workforce rental housing sector is plagued with a severe lack of units and is far from able to meet the extraordinary demand for units among Americans with lower incomes. According to the National Low Income Housing Coalition, the country supply shortage for this demographic is approximately 7.3 million units and every single state within the U.S. is impacted.

This makes Freddie Mac’s commitment to providing finance options for affordable and workforce property owners critical toward keeping existing supply available to renters. However, the agency requires certainty of mission execution from long-term partners who participate in B-piece investments in order to continue to do so.

Sabal has been highly active in this space since 2016 and is currently Freddie Mac’s second largest purchaser of small balance B-pieces, with nearly $11 billion notional acquired across 28 FRESB B-piece investments. Dive deeper into how Sabal leverages current workforce and affordable housing investment strategies to keep its clients ahead of the curve.