Asia Capital Real Estate, a New York-based real estate private equity manager that focuses on the US multifamily market, is writing a playbook for financing single-family residential developers who are constructing large-scale, purpose-built projects
Purpose-built single family residential projects are the latest iteration of the SFR sector, Daniel Jacobs, partner and head of originations at ACRE, tells Real Estate Capital USA.
“What’s interesting from a credit perspective is that these properties are not as easily financed as a conventional multifamily building,” Jacobs says.
While the company’s multifamily loans have been traditionally structured, there are a couple of twists with purpose-built single-family loans.
First, borrowers in this part of the market are typically seeking higher-leverage financing. Additionally, the developers are typically working with homebuilders on a forward takedown schedule.
“The biggest challenge to structuring these loans is that a small component of the capital is available on day one and there’s a significant delayed draw of the loan. Most of the time, you’re fully funding 80 percent to 90 percent of a loan on day one for a traditional multifamily project,” Jacobs says. “There’s much more emphasis on sponsors and developers and really underwriting loans well.”
Looking ahead, Jacobs sees a bright future.
“There is a shift toward having more space and having a better living situation,” he says. “It’s also a nice hedge to our multifamily business and we can engage with institutional developers, financing their conventional multifamily and SFR build to rent holdings as well.”