Borrower profile: Olive Tree sees clear path for workforce housing expansion

New York-based Olive Tree Holdings sees sustained demand and a clear path forward for its workforce housing strategy, with ample debt available from lenders – albeit at a substantially higher cost than a year ago.

The firm, which has acquired more than 16,000 units of workforce housing since its inception in 2017, focuses on properties of at least 150 units. Despite a slowdown in transaction volume, Olive Tree continues to evaluate potential acquisitions, with the hope there will be more near-term clarity in pricing and interest rates, said Ian Bel, managing member.

“Lenders are ready, willing, and able to lend but the cost of debt is very high,” Bel said. “When you have debt costs that have risen as fast as we have seen, it is hard to transact. You can see there has been a huge slowdown in transaction volume and until there is clarity on where the 10-year Treasury will reside, we will see less transaction volume.”

Despite this drop in transaction and lending volume, the firm has seen an active bid from Fannie Mae and Freddie Mac, Bel said. The company obtains bridge loans at acquisition and then secures long-term financing once an asset is stable. Olive Tree’s entire portfolio is under the 80 percent AMI threshold to qualify for Low-Income Housing Tax Credits, and about half of its units have some sort of restrictions, he added.

Olive Tree is a value-add investor, undertaking substantial rehab on every project it acquires, looking at both the interior and exterior of assets. “We will renovate somewhere between 50 and 80 percent of the interior units over a 24- to 36-month timeframe with new floors, appliances and countertop,” Bel said. “We also work on LED upgrades and low-flow retrofits.” It is also looking at amenities like dog parks or tech centers, with additional financial wellness programs.

The firm is a data-driven manager, using analysis to drive its investment strategy. “We look to leverage data to identify the market that have the most growth and the most protection for that growth. Data has been our leading analytical framework for making decisions, be it buying, selling, or financing property or making asset management or operational decisions,” Bel said.

Olive Tree owns properties in Houston, Dallas, Indianapolis, Columbus, Madison, Kansas City, Fayetteville and Bentonville.

“We continue to have a roster of markets we track that we’re most excited about,” Bel added. “The thread we find most exciting across our markets is the high volume of job growth over the past 10 years, where we see a strong intersection of a diverse economy and population migration. We also look at the macro market and micro indicators, including what does the existing asset base look like in that market, and can we buy at a discount to replacement cost?”