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July 15, 2016

How One Borrower Delivers Workforce Housing

Peter Giles
Article By
Peter Giles, VP Production & Sales

Sometimes you come across a great story that you need to share. Here’s one about a 40-year old business providing workforce housing in the Greater Los Angeles region.

Dr. Ram K. Mittal is an innovative businessman with a heart, who shares Freddie Mac’s passion for meeting the challenges of the affordable rental market. Almost 40 years ago, he envisioned a hands-on property management company—a buy-and-hold firm that would be directly involved with all aspects of providing a safe and secure living environment. Together with ACRE Capital and Freddie Mac, Swami International has grown to provide over 2,500 housing units today, of which the majority is workforce housing

A Solid Partnership

For Swami International, primarily a cash-flow business, it was important to establish strong relationships with lenders. Ram developed connections with a number of local banks and those connections continue to be strong today. The banks have provided five-year to seven-year fixed-rate loans with up to two years of interest-only. With this funding, Swami advanced steadily by acquiring, rehabilitating and managing properties.

Eventually, Swami grew to a point when larger loans with longer terms and more interest-only options were required. Here’s where we came in — working with ACRE Capital, Freddie Mac offered fixed and floating rates for up to ten years, plus five years of interest-only. This funding allowed Swami to continue acquiring and renovating more and more properties.

Why Freddie?

“One of the main reasons we obtain financing through our Freddie Mac Seller/Servicer,” said Daniel Stanghelle of Swami International, “is because Freddie Mac offers long-term financing for our properties, which fits well with our buy-and-hold strategy. In addition, we can customize loan terms such as interest-only periods as well as fixed-rate and variable-rate loans that allow us to execute our improvement and operation plans for each property in our portfolio.”

Economies of Scale

As a way to keep costs to a minimum and continue providing upscale workforce housing, Swami purchased its current headquarters — 26,000 square feet of space — in 2001. It houses staff members, maintenance personnel and in-house resident managers, plus provides warehousing for supplies, like paint, fixtures, and flooring.

They purchase supplies such as bamboo flooring, granite and travertine countertops, and security doors directly from wholesalers — materials that enable them to offer updated, safe and secure apartments at workforce housing rates. And, the company purchased its own Ace hardware coop store, allowing them to buy essential items at wholesale prices. With higher quality, longer-lasting finishes in the units, tenants are happy, leases are renewed and less maintenance is required.

Swami has maintained a high occupancy rate throughout its 40 years in business with the philosophy that a happy tenant will remain happy and stay for the long term. Their portfolio vacancy, currently at 3.8 percent, has consistently stayed below the 5.0 percent industry average for their area.

More Cost Savings

Further cost savings result from the company’s vertically integrated organization: 125 resident managers report to five regional supervisors who report to one general superintendent. In addition to their headquarters in Gardena, California, Swami has a back office in India where financial analysis is performed. By posting information nine hours in advance of California time, India’s daily reporting is ready when Ram and his team arrive in the California office the next morning.

“Swami is constantly evolving, discovering new ways to keep their workforce-housing units profitable. We’re pleased to be working with them, and also with Freddie Mac, to provide them even more room to expand,” said John Barbie, CMB, of ACRE Capital.

What is Workforce Housing?

Broadly speaking, workforce housing is multifamily units that are affordable for low- to moderate-income households—teachers, nurses, firefighters, police officers, and the like, who do not qualify for housing subsidies. The need for workforce housing is widespread across the country from the urban core to suburban communities to rural areas.

Freddie Mac offers loan programs that provide liquidity and stability to the multifamily finance market nationwide, including the workforce housing market. Our loan programs include financing for small balance loans, affordable properties, conventional projects, manufactured housing communities, acquisition and rehabilitation of older properties and senior’s housing projects. We also provide interest rate incentives for properties with recognized “green” certifications.

Use these resources to learn more about workforce housing:

Swami International properties

Garden Grove
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