Irvine, California-based Sabal Investment Holdings last week completed the acquisition of five Freddie Mac b-pieces, building up its exposure to the workforce housing sector at a time when demand for and interest in such properties is rising.
The firm acquired the b-pieces from securitized deals with a collateral balance of $2 billion which were part of three distinct shelves – Freddie Mac’s SB-Deals, K-Deals and Q-Deals programs, said Drake Ayres, a managing director.
Sabal believes the workforce and affordable housing markets weather better adverse economic conditions and inflation than other sectors. Additionally, the McLean Virginia-based government-sponsored enterprise’s brand means a certain standard of underwriting, Ayres added.
“Beyond the string ent underwriting standards, there is the fact that you have access to a diversified portfolio,” Ayres said. “If you look at the transactions we have closed to date, you will see the loans are not concentrated in a single market because Freddie Mac lends on all markets throughout the US.”
Freddie Mac SB deals are comprised of loans of $1 million to about $7.5 million, while K series deals are for loans of more than $7.5 million. These loans are originated through licensed Freddie Mac seller-servicers to a series of specified parameters before securitization.
The Q series, however, is comprised of collateral from originators that do not have Freddie Mac licenses but originate loans according to the agency’s parameters. “It is mission critical for the agencies to support housing in the US. To the extent Freddie Mac sees collateral that fits its goals, the agency can create similar portfolios, securitize them, and create an investment opportunity for parties like us,” Ayres said.
Despite the slowdown in transaction volume seen this year, Sabal has not seen a significant decline in its own activity. This is in part due to its strong focus on affordable and workforce housing, Ayres said.
“There will always be a lot of government support for housing within the broader US economy, which is why we have Fannie Mae, Freddie Mac and HUD. You’re also seeing different municipalities take different steps to provide financing for investors,” Ayres said. “We have been an established partner with Freddie Mac since 2016 and while originations are down, there are still deals active in the market for Freddie Mac’s partners.”
In addition to acquiring agency b-pieces, the firm’s strategy will include the occasional acquisition of non-agency b-pieces as well as its core opportunistic focus.
“Our firm was rooted in an opportunistic-style investment, and we are expanding that team and platform to take advantage of the dislocation in the broader market,” Ayres added.