USDA Section 538 Feasibility Study Case Study: Rural Workforce Apartments in Brownsville, Haywood County, Tennessee

A 48-unit garden community on a 5.00-acre parcel at 5 Pepper Place in Brownsville, the Haywood County seat twelve miles from Ford's BlueOval City, financed with a USDA Section 538 guaranteed loan under 7 CFR Part 3565 for households at or below 115 percent of area median income. Total project cost of $7,100,000, a coverage-sized loan of $4,994,000 at 70.3 percent of cost under the pilot's 1.11x test that opens October 9, 2026, debt service coverage of 1.11x at stabilization in Year 3 and 1.18x in Year 5, and a written determination of feasible with conditions, underwritten on the renters already in Brownsville rather than on the plant's 2029 hiring.

Model study prepared by MMCG Invest | Michal Mohelsky, J.D., FMVA | October 1, 2026

MMCG concludes that the proposed 48-unit community at 5 Pepper Place in Brownsville, Tennessee is feasible with conditions under a USDA Section 538 guaranteed loan. The loan is sized by the coverage test, not by the program's leverage limits: at a 6.25 percent fixed rate over 40 years, the pilot's 1.11x test supports $4,994,000, 70.3 percent of a $7,100,000 total project cost, and the regulation's 1.15x test supports $4,820,000, 67.9 percent, against an Option 3 loan-to-cost limit of 80 percent that would allow $5,680,000 and cover at only 0.98x. The Project reaches 1.11x coverage at a stabilized occupancy of 93 percent in Year 3 and 1.18x in Year 5 as rents escalate ahead of expenses. The sponsor's equity is $2,106,000 under the pilot sizing and $2,280,000 under the standard test, and the difference of $174,000 is the practical value of the pilot to this Project. The demand case is built on the renters already in Brownsville, where 52.4 percent of households rent and the three affordable communities in town are Section 515 properties with rental assistance, not on BlueOval City, whose hiring has slipped to 2028 for the battery plant and 2029 for the truck plant; the plant is carried as a sensitivity that raises stabilized occupancy and rent, not as base-case absorption. The determination is conditioned on four items: confirmation of Brownsville's eligibility on the USDA Rural Development multifamily eligibility map; the lender's election between the pilot's 1.11x sizing and the standard 1.15x sizing with the corresponding equity; a City of Brownsville zoning confirmation that the parcel permits multifamily at 48 units; and USDA's published 115 percent income limits and rent caps for Haywood County, which MMCG has derived from the HUD FY2026 limits and which USDA publishes separately.

This is an MMCG model study: a complete feasibility analysis performed on a real, publicly marketed parcel using public data, prepared to show lenders and sponsors how MMCG underwrites a USDA Section 538 rural rental housing project in a small West Tennessee county seat where a major employer is under construction but not yet hiring. It is not a client engagement, MMCG has no relationship with the landowner or the listing broker, and the analysis does not represent an offer, an appraisal or a recommendation to buy the parcel. Figures drawn from government sources, property websites and the listing are identified as such. Figures labeled MMCG assumption are underwriting inputs set by MMCG from industry benchmarks, and items that could not be verified from a primary source at the study date are listed in the Conditions and Limitations section rather than estimated silently. In particular, the parcel's zoning, the USDA eligibility map result for Brownsville, USDA's own 115 percent income limits for Haywood County, the unit counts and rents of the three Section 515 communities in town, the City of Brownsville and Haywood County property tax rates, and the Section 538 lender's note rate were not confirmed from primary sources at the study date and are carried as stated assumptions or derived figures.

The Project will operate as a workforce apartment community on the 5.00-acre parcel at 5 Pepper Place in Brownsville, Haywood County, Tennessee, inside the city limits and within the Brownsville trade area that serves the county's 17,042 residents and the BlueOval City campus twelve miles to the southeast. The physical program comprises four two-story wood-frame walk-up buildings over slab with brick and fiber cement veneer, holding 48 units in three plans: 8 one-bedroom units of 700 SF, 28 two-bedroom units of 950 SF and 12 three-bedroom units of 1,200 SF, for 46,600 SF of net rentable area and 53,000 SF gross, together with a leasing office and community room of 1,400 SF, a playground, a covered mail kiosk and 84 surface parking spaces at 1.75 per unit. The community will be managed by a third-party fee manager approved by the Section 538 lender at 5 percent of effective gross income, with an on-site staff of two full-time equivalents, a community manager and a maintenance technician, and income certification at initial occupancy for every household against the 115 percent limit. The sponsor will hold the land and improvements in a single-asset limited liability company that is the borrower under the lender's loan and the USDA guarantee, with the sponsor's principals providing the completion guarantee and the lender's standard carve-outs on a loan that is otherwise non-recourse after conversion. The Project is positioned as the first new market-rate apartment community in Brownsville in more than two decades, at asking rents of $1,025 for a one-bedroom, $1,225 for a two-bedroom and $1,400 for a three-bedroom at opening, well above the city's median gross rent of $767 across a stock that is almost entirely subsidized or pre-1990, and well below the Section 538 rent caps, with a lease-up concession of two weeks free on initial leases and no concession in the stabilized year.

Marketing and Sales Strategy

Pre-leasing begins three months before certificate of occupancy from a leasing office in the first completed building. The core channel is the local employer base: Haywood County Schools, Haywood Hospital and the county's manufacturing and logistics employers along Interstate 40, whose workforce falls inside the 115 percent income band and has had no new rental product to move into. The BlueOval City channel is worked through the Tennessee College of Applied Technology's BlueOval training center and the construction contractors on the campus, whose craft workforce is on site now and rents in Brownsville, Jackson and Memphis, without carrying that channel in the base-case absorption. Digital acquisition runs through the internet listing services on Brownsville, Stanton and Haywood County terms, where competing listings are few. Retention runs through renewal pricing held at or below 3 percent and through the three-bedroom plans, which the town's family renters cannot find elsewhere.

Amenities

The parcel is a 5.00-acre tract at 5 Pepper Place in Brownsville, marketed on Coldwell Banker at $75,000 under MLS 10219757; the listing does not state the zoning. Brownsville is the seat of Haywood County on Interstate 40 between Memphis, 55 miles to the southwest, and Jackson, 30 miles to the east, and the Brownsville-Haywood County Chamber of Commerce places BlueOval City twelve miles from the city. The Census Bureau's Vintage 2025 estimate places the city's population at 9,301 on July 1, 2025, down 5.0 percent from the 9,788 counted in April 2020, with a median household income of $43,494 over 2020 to 2024 and 25.7 percent of persons in poverty. The city is a renter market by Tennessee standards: 52.4 percent of occupied housing units are rented, at a median gross rent of $767, and the rental stock is old and largely assisted. Haywood County held 17,042 residents in 2025, down 4.6 percent since 2020, with a median household income of $50,472, 39.3 percent renter occupancy, a median gross rent of $762 and 19.8 percent of persons in poverty, and the county issued 82 building permits in 2025.

The demographic trend is the central fact of the site and MMCG does not underwrite against it. A city that has lost 5.0 percent of its population in five years does not support a demand model built on household growth; it supports one built on replacement of obsolete stock, which is what the subject offers, and on the renter households already present, which at 52.4 percent of 3,800 occupied units is about 2,000 households. The plant is the reason the sponsor is here and it is treated as such: an upside case, with its timing stated from the public record.

The parcel's zoning was not stated in the listing and was not retrieved from the City of Brownsville at the study date. The Project requires a zoning district that permits multifamily at 9.6 units per acre with two-story buildings and surface parking, a density well inside the range of the city's existing apartment communities, and the zoning confirmation is the third condition precedent. The Section 538 application requires evidence of zoning and site control, and the schedule carries four months for a rezoning or special use approval if one is required; Brownsville's planning commission meets monthly and the city has no recent record of denying multifamily. The parcel's listed price of $75,000, or $15,000 per acre, is carried as the land basis.

Water, sewer and electric service is provided by the Brownsville Utility Department and the budget carries $130,000 for connections and tap fees as a stated allowance to be replaced by the utility's written estimate. Tennessee municipalities do not levy impact fees on residential construction as a general matter, and none is carried.

Property tax is carried at a combined City of Brownsville and Haywood County rate of $3.00 per $100 of assessed value, on Tennessee's 40 percent assessment ratio for commercial and industrial property, as an MMCG assumption to be replaced by the certified 2025 rates. The first full-year assessment is carried at $6,500,000 of appraised value, or $2,600,000 assessed, for a Year 1 tax of $78,000, or $1,625 per unit, escalating 2 percent per year. Tennessee's 40 percent ratio and the county's rate make property tax 11.1 percent of effective gross income at stabilization, well below the share a Texas or Florida garden community carries, and the operating budget is lighter for it.

The primary market area is the City of Brownsville and Haywood County, with a secondary draw from Stanton and the eastern edge of Tipton County along Interstate 40. Within it the study counts renter households by income band from the county's distribution. The Section 538 income limit is 115 percent of area median income, and the HUD FY2026 limits for Haywood County, effective June 1, 2026, set the 50 percent limit at $27,300 for one person, $31,200 for two, $35,100 for three and $39,000 for four, and the 80 percent limit at $43,700, $49,950, $56,200 and $62,400. From those figures MMCG derives the 115 percent limits at $62,790, $71,760, $80,730 and $89,700, and the Section 538 rent caps at 30 percent of those limits on the standard occupancy of one and a half persons per bedroom: $1,682 for a one-bedroom, $2,018 for a two-bedroom and $2,243 for a three-bedroom (taken at the four-person limit), with the project's average rent capped at 30 percent of 100 percent of area median income, $1,463, $1,755 and $1,950 by bedroom. USDA publishes its own Section 538 limits, which govern, and they are the fourth condition precedent.

The caps do not bind. The subject's rents of $1,025, $1,225 and $1,400 sit 38 to 39 percent below the unit caps and 30 percent below the average-rent caps, so the Project underwrites as a market-rate community that happens to carry a 115 percent income ceiling, and the ceiling admits nearly every renter household in the county: a two-bedroom at $1,225 requires $49,000 of income at 30 percent, below the county's median household income of $50,472, and the 115 percent limit for a three-person household is $80,730. The income-qualified pool is therefore the renter households earning between about $41,000 and the limit, which MMCG estimates at 35 to 40 percent of the county's roughly 2,700 renter households, or 950 to 1,100 households, against a subject of 48 units. The American Community Survey income table for renter households in Haywood County was not retrieved at the study date and the estimate is carried as such.

The demand model is built in two layers. The base case counts replacement demand from the existing renter households: Brownsville's rental stock is dominated by three Section 515 communities with rental assistance and by single-family rentals and small pre-1990 properties, and the households earning above the Section 515 income limits but below $80,000, the teachers, nurses, plant maintenance and logistics workers of a county seat, have no product built after 2000 to rent. The subject at 48 units needs to capture about 5 percent of the income-qualified renter households in the county to stabilize at 93 percent, and in a town where every unit it offers is a step up from the existing stock, that capture rate is conservative. Absorption is set at 6 units per month, which stabilizes the Project in about eight months, slower than the Section 538 handbook's expectation for a 48-unit project and consistent with a county that is not growing.

The upside case is the plant. Ford committed to about 5,800 jobs at BlueOval City in exchange for a $900 million state incentive package, with at least 90 percent of them required within ten years, and the Tennessee Truck Plant is expected to employ about 2,300 people; after a series of delays and the dissolution of the SK On joint venture, hiring is now tied to the start of production, 2028 for SK On Tennessee and 2029 for Ford, and BlueOval SK laid off 150 workers in March 2026. The subject opens in late 2027 and stabilizes in 2028, before the plant hires, so the base case does not use the plant. The sensitivity case assumes the 2029 hiring arrives on schedule and that 10 percent of the truck plant's workforce rents in Haywood County, which would add roughly 230 renter households to a county with no new supply and would lift the subject's stabilized occupancy to 95 percent and its rents by 5 percent above forecast from 2029.

MMCG identified three affordable communities and one small conventional property in Brownsville. None of their unit counts or rents was confirmed on a property website or in the USDA multifamily directory at the study date, and the fields are listed in the Conditions and Limitations section.

Competitor Number 1 Creekwood Apartments This community is located in Brownsville, TN and is listed in affordable housing directories as a USDA Section 515 property with Section 521 rental assistance. Unit count, year built and basic rents were not confirmed at the study date. It serves households below the Section 515 income limits and is not a direct competitor for the subject's renter pool.

Competitor Number 2 Ridgeview Apartments This community is located in Brownsville, TN and is listed as a LIHTC property under the 40 at 60 set-aside with Section 515 financing and Section 521 rental assistance. Unit count, year built and rents were not confirmed at the study date. Its 60 percent of area median income units overlap the lower edge of the subject's income band.

Competitor Number 3 Haywood Manor Apartments This community is located in Brownsville, TN and is listed as a LIHTC property under the 40 at 60 set-aside with Section 515 financing and Section 521 rental assistance. Unit count, year built and rents were not confirmed at the study date.

Competitor Number 4 Brownsville Apartments This property is located at 1045 Tammbell Street, Brownsville, TN 38012 and is listed by an aggregator as a 17-unit community built in 1995. It is the only conventional property identified in the town; its rents were not confirmed at the study date.

No apartment community under construction or approved in Brownsville or Haywood County since 2020 was identified in public records at the study date. The county's 82 building permits in 2025 were residential and the subject would be the only multifamily delivery in the county in its lease-up window. The absence of a pipeline is the reason the pipeline census is disclosed rather than made a condition.

The subject's opening rent schedule is set from the gap between Brownsville's existing stock and the new product the market has not had. The city's median gross rent of $767 and the county's $762 describe a stock of assisted and pre-1990 units; the nearest new conventional garden product is in Jackson, 30 miles east, where two-bedroom units in communities delivered since 2020 lease in the $1,250 to $1,400 range on the metro series, and the subject's two-bedroom rent of $1,225 is set below that corridor to reflect Brownsville's smaller labor market and lower incomes. The one-bedroom rent of $1,025 and the three-bedroom rent of $1,400 follow from the two-bedroom. The blended asking rent is $1,235 per unit per month, $1.27 per square foot, which is 62 percent above the county median gross rent and 30 percent below the Section 538 average-rent cap.

Concessions are modeled in two places. In the stabilized year the subject carries a 7 percent vacancy and collection loss and no concession. In lease-up it offers two weeks free on initial leases, carried at 4 percent of gross potential rent in Year 1 and 1 percent in Year 2. Rents escalate 3 percent per year, and the Section 538 caps, which move with area median income, stay far above them through the hold.

The Project opens in the fourth quarter of 2027 after a 12-month construction period and leases up at 6 units per month to 90 percent occupancy in about eight months, then to a stabilized 93 percent occupancy from the third quarter of 2028. The Section 538 handbook requires a lease-up reserve of three months of operating expense, debt service and reserve deposits, releasable after six months of sustainable occupancy, and the sources and uses carry it at $173,250 together with an interest and operating reserve of $468,500 that funds the Year 1 shortfall against debt service.

Other income, which comprises application and administrative fees, pet rent and late fees, is carried at $50 per occupied unit per month and escalates with rent. Year 1 average occupancy of 60 percent corresponds to roughly 90 percent at month 8; Year 2 average occupancy of 92 percent corresponds to stabilization at 93 percent during the year.

Location: 5 Pepper Place, Brownsville, TN 38012 Size in SF (Gross): 53,000

Source: Marshall & Swift CoreLogic, MMCG

Total project cost of $147,917 per unit is about 43 percent of the $341,000 per unit average of MAA's 2026 development pipeline, which reflects a two-story walk-up on $15,000 per acre land in rural West Tennessee with no clubhouse, no pool and no structured parking; hard cost of $112 per square foot gross is a rural Tennessee wood-frame figure with brick veneer. The initial guarantee fee is carried at the standard 65 basis points; the Project would qualify for the 60 basis point workforce housing fee only if it restricted occupancy to households at 80 to 115 percent of area median income, which the sponsor has not elected. The interest and operating reserve of $468,500 together with the lease-up reserve of $173,250 covers the Year 1 shortfall of $244,050 against debt service and the construction-period interest beyond the capitalized amount, with a margin of about $225,000.

Loan Assumptions

The loan is sized at the lesser of 90 percent of value for a for-profit borrower under 7 CFR 3565.204, 80 percent of total development cost on an Option 3 guarantee under the notice of September 25, 2026, and the amount supportable at the coverage test. The coverage test binds: 80 percent of cost would allow $5,680,000, which covers at 0.98x, and 90 percent of value is above that. The difference between the pilot's 1.11x and the regulation's 1.15x is $174,000 of proceeds on this Project, and the lender's election between them, with the corresponding equity, is the second condition precedent.

The Project is a newly constructed rental community in a rural area for households at or below 115 percent of area median income and is eligible under 7 CFR Part 3565. Brownsville's 2020 census population of 9,788 is below the 10,000 threshold for a place that is rural in character under Section 520 of the Housing Act of 1949, and the city's eligibility on the USDA Rural Development multifamily housing eligibility map is the first condition precedent because the map, not the population figure, governs. Under 7 CFR 3565.202 every household must have income at or below 115 percent of area median income at initial occupancy, and under 3565.203 no unit's rent may exceed 30 percent of 115 percent of area median income while the project's average rent may not exceed 30 percent of 100 percent; the subject's rents sit far below both caps and the manager's income certification at initial occupancy is the compliance mechanism.

The guarantee is 90 percent of the loan under 7 CFR 3565.52, on a fixed-rate loan of 25 to 40 years under 3565.209 and 3565.210, with an initial guarantee fee of 65 basis points and an annual fee of 35 basis points at the standard rate. Under 7 CFR 3565.303(d)(2) the lender certifies at issuance of the guarantee that the project meets a debt service coverage ratio of at least 1.15 on the lender's analysis of current market conditions and comparable properties; the pilot announced on September 25, 2026 reduces that ratio to 1.11 for the first 200 loans closed between October 9, 2026 and September 25, 2028, and raises the Option 3 loan-to-cost limit from 70 to 80 percent permanently. The Project's application should be filed to be inside the pilot's 200-loan count, and the lender's election is the second condition precedent.

HB-1-3565, reissued March 10, 2026, requires a market analysis for newly constructed properties, states that a separate market study will be conducted containing the material in Exhibit 3-8, and lists the market study beside the appraisal on the application checklist with the lender responsible for a complete application. This study's market section is written to Exhibit 3-8 so that it can serve as the Section 538 market study, and the handbook's lease-up reserve formula, three months of operating expense, debt service and reserve deposits, is carried in the sources and uses at $173,250 and released after six months of sustainable occupancy. The handbook also makes the market analysis a sizing input that could limit project size; at 48 units in a county with no new supply and about 1,000 income-qualified renter households, the subject is inside the market.

The Year 3 operating budget at 93 percent occupancy is built by line for Brownsville, with property tax on Tennessee's 40 percent assessment ratio and insurance at the current rural Tennessee cost per unit.

The expense ratio of 46.3 percent is higher than a larger community's because 48 units cannot spread a manager's salary and a maintenance technician across enough rent, and the management fee at 5 percent reflects a small-property contract; the all-in operating cost of $7,051 per unit sits below the IREM 2024 national figure of $7,981 because the tax line is light. Insurance is carried at $900 per unit in Year 1, above the National Apartment Association's 2024 national average of $777, and escalates 5 percent per year. The replacement reserve is carried at $300 per unit, above the agency minimum, because the lender's and the Agency's reserve requirement on a Section 538 property is set in the loan agreement and a rural garden community with washer and dryer connections carries turnover cost.

The Year 1 shortfall of $244,050 is funded from the interest and operating reserve. The Project covers its debt from Year 2 at 1.03x, reaches the pilot's 1.11x in Year 3 and the regulation's 1.15x in Year 5, and builds to 1.18x by Year 5 as rents escalate at 3 percent against a tax line at 2 percent and controllable expenses at 3 percent. The yield on cost of 5.52 percent in Year 3 is below the 6.25 percent note rate, negative leverage, and it is why the coverage test and not the 80 percent loan-to-cost limit sizes the loan.

At Year 3 rents, the community's fixed operating cost is $316,318 including the replacement reserve, and its variable cost is the management fee.

The 1.15x threshold at 94.8 percent occupancy is above the stabilized forecast in Year 3, which is the arithmetic reason the regulation's test sizes a smaller loan than the pilot's; the Project reaches 1.15x on the pilot-sized loan in Year 5 on rent growth. The debt break-even at 88.0 percent is the credit fact: in a town with no competing new supply, the risk to that threshold is a slower lease-up, not a loss of tenants to a competitor.

The Project holds coverage above 1.0x in every single-factor case except an 85 percent stabilized occupancy, which reduces Year 3 coverage to 0.93x; the combined case of lower rents and 90 percent occupancy reduces it to 0.95x, recovering above 1.0x in Year 5. The margin is thin by design, because the loan is sized at the pilot's test, and the lender that elects the standard 1.15x sizing buys four points of coverage for $174,000 of equity. The 80 percent case is the limit the sponsor should not plan around: at that loan the Project covers at 0.98x. The plant case is the upside: on-schedule hiring in 2029 with 10 percent of the truck plant workforce renting in the county lifts Year 4 coverage to about 1.29x, and the sponsor's return rests on it.

The determination of feasible with conditions is subject to the following conditions precedent:

The following items could not be verified from a primary source at the study date and are disclosed: the parcel's zoning; the USDA eligibility map result; USDA's Section 538 income limits for Haywood County, which MMCG derived from the HUD FY2026 HOME limits; the unit counts, years built and rents of Creekwood Apartments, Ridgeview Apartments, Haywood Manor Apartments and Brownsville Apartments; the City of Brownsville and Haywood County 2025 property tax rates; the Brownsville Utility Department tap fee schedule; the American Community Survey renter household income distribution for Haywood County; the exact distance from the parcel to BlueOval City, which the Chamber of Commerce states as twelve miles and listing sources as 13 to 15; and the Section 538 lender's note rate at rate lock, carried at 6.25 percent as an MMCG assumption.

This model study applies the methodology described on MMCG's multifamily feasibility study and USDA multifamily feasibility study pages. MMCG prepares multifamily feasibility studies and Section 538 market studies for USDA, HUD, LIHTC, agency and bank construction lenders nationwide, with engagements from $4,900 and delivery in 9 to 16 business days.