NEWPORT BEACH, CA—The small-business-loan sector continues to be an exciting and underserved market today, for many of the same reasons that banks have not met their historical loan amounts, Sabal Capital Partners' CEO Pat Jackson tells GlobeSt.com. Sabal closed $1 billion in multifamily small-balance loans this year through Freddie Mac's SBL program and recently closed three portfolio transactions: a $65.5-million portfolio of 20 refinance loans for apartment properties in California, a $51.5-million portfolio of 10-year fixed-rate loans for apartment properties in Missouri, an $8.3-million portfolio of five-year hybrid loans on eight properties in Illinois and a $129-million portfolio of 34 refinance loans for multifamily workforce properties in the Bronx—the largest single transaction closed through Freddie's SBL program.

We spoke with Jackson about the Freddie Mac SBL program, how he would characterize the health of small-balance loans and his expectations for 2018 in the financing realm.

GlobeSt.com: To what do you attribute the increase in size and volume of Freddie Mac SBL loans?

Jackson: The program is relatively new—it was officially launched in 2014, and the first loan was in early 2015. The focus was to provide small-balance loans primarily for affordable housing, but there are a lot of market dynamics in play at the same time: banks are not in that space as they had been, there are supply-and-demand issues going in in that space, and there is not a lot of new product coming into the affordable-housing multifamily space. Also, there are big demographic shifts going on. The workforce is starting to expand, and people aren't buying new homes like they historically have because of the lack of supply, so there are pressures on the affordable rentable space. This program is transparent about how it works, which is attractive to investors; they will work with the SBL program multiple times. All of those things together highlight what's nice about this product, which is allowing Freddie Mac's SBL program to continue to grow.

GlobeSt.com: How would you characterize the health of small-balance loans currently and looking ahead?

Jackson: Certainly, for the opportunities around affordable and workforce housing from an investor and lender point of view, these loans will be very strong. With the supply-and-demand issues and available credit from other lending sources, this will continue to be a robust growth area with dependable credit. Looking at the overall SBL market beyond multifamily, this continues to be an exciting and underserved market today, for the same reasons banks haven't met their historical level of loans. There are very few national platforms focused on that as we are.

GlobeSt.com: What are your expectations from the agencies in the next year?

Jackson: This year, Freddie will originate between $6.5 billion and $6.8 billion in small-balance loans. Next year, it will be between $8 billion and $9 billion. It's continuing to get an increasing share of the market. As investors become more knowledgeable about how competitive this product is, it becomes a more well-defined process that makes it easy to get a loan. If you've done one, the next one is easy. There's more acceptance of this product, and it will take a bigger piece of this marketplace.

We plan to be one of the dominant players in this space and play along with Freddie as it takes more market share. SBL is a niche that if you do it well and set your processes and technology up to be a good player, you can do well; if not, it's a hard business. We at Sabal believe this has contributed well to our growth since we have really focused on doing this efficiently. We have designed a platform around SBL, have put the tools in place to do it well and are getting rewarded for it. Freddie in some respects has done exactly the same thing: they have a dedicated team of people for SBL with focused expertise around this specific business.

GlobeSt.com: What is your outlook on the CRE finance market as a whole for 2018?

Jackson: Everyone is looking forward to continued robust growth. As economic growth continues, it will drive every area of CRE: multifamily, job creation and the core real estate areas of industrial, office, warehouse and self-storage. These all get affected when the economy is booming. On Wall Street, a lot of people are factoring in tax reform and expectations for GDP growth as well. If that occurs as it is supposed to, the CRE market will really get rewarded. When we look at our niche, we have advantages that give us better protection. Spreads have come in because it's more competitive; people are chasing large deals. In the SBL space, there are not national platforms set up around this, so there's less of that kind of pressure. We think it's a good time to be in the lending business, related to SBL.

Instant Insights /

The SBL Space Presents Abundant Opportunity

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