How to finance class B property

10 Replies

I was looking for advice on how to refi a 12 unit multifamily I purchased recenly in New Jersey. Currently, the previous owner is holding note. There are 3 structures on the property totaling 12 units 100% occupied. Is the Fannie Mae small loan a good option?

Do a search online "multi unit lenders in your city" and contact them. Also contact local community banks, they are fighting to get small loans.

Most likely they will finance it at .75 LTV and the value will be based on NOI and cap rate and not on market value since it's a commercial property.

Thanks Pavel. Do commercial lenders generally require a seasoning period before a property can be evaluated for more then the sale price?

Originally posted by @Ben W. :

Thanks Pavel. Do commercial lenders generally require a seasoning period before a property can be evaluated for more then the sale price?

Depends on the lender. If it's Fannie/Freddie, you may be restricted to x% loan-to-cost within 12 months as opposed to others who could lend strictly on the appraised or underwritten value.

@Ben W.  

As a commercial mortgage broker, I agree with @Ryan G. 

How recent was your purchase?  Most lenders have seasoning restrictions and even if they say they don't, they do.  I only know of a couple lenders who will go off of appraised value within a short period of time (90 days seasoned), but even that's a stretch and personally I think they look hard at the sale price, equity that you've injected into the property if you've had to, etc.  Most want at the minimum 6 months, if not 1 year.  I would say in your case depending on when you bought it, Fannie Mae would not be an option until you've owned it for a little bit.

Fannie/Freddie only loan of four unit properties or less.  If these three building are all separate parcels, you may be able to get such a "conventional loan".  If not, you'll have to do a commercial loan.

Commercial lenders want to see a lengthy track record of running the property.  Several years.  Commercial properties are valued based on income, so they want to see the income to justify a higher valuation.

@Jared Rine  - Agreed. One other thing to note: Even if you find a bank willing to lend on appraised value, the appraiser will take into account the most recent sales price. While they may value the property based on its income, when there's a recent sale, they may also back into a value that reflects that sale (i.e., selecting a cap rate that reflects the value at the most recent sale rather than using a true "market" cap rate).

@Jon Holdman  - Fannie and Freddie both do billions in lending in the multifamily realm. Fannie Multifamily has a "small loan" option (I believe <$5MM), which I assume is what the OP was referencing in his initial post.


@Jon Holdman  - Fannie and Freddie both do billions in lending in the multifamily realm. Fannie Multifamily has a "small loan" option (I believe <$5MM), which I assume is what the OP was referencing in his initial post.

 I second this.  Fannie is the largest commercial multifamily lender in the country.

@Nick Keesee 

I've heard that these MF Fannie Mae loans can have very good interest rates.  IE, 25 basis points lower than rates obtained from conventional banks.  Is that true? 

If so, do you access these directly from Fannie?  (As opposed to the loan being sold to Fannie on the 'back end' in the secondary market.)  If not directly, then how do you obtain those loans?

@Andrew Kniffin

Not trying to hijack @Nick Keesee , but following this thread and being familiar with Fannie and Freddie loans, you need to have a relationship with a lender who offers this type of agency financing.    Unless you have those relationships already in place from being in investment banking or similar, you aren't going to access Fannie Mae directly.

To answer your other question/comment, yes Fannie Mae loans are usually sometimes the most competitive when it comes to interest rates.  

Hi @Andrew Kniffin  

Yes, Fannie loans are about the best MF lending product out there.  They typically carry a lower interest rate and offer better amortization schedules.  Many times they can be non-recourse as well.

The catch is that they usually only lend to experienced operators.  Of course you can get around that if you bring on an experienced partner, however it's something to keep in mind.

As far as getting access to these loans, any good commercial mortgage broker will have access. They would be able to sit down with you and give you the best possible debt product for you situation whether it be a bridge lender, local bank, a CMBS product, Fannie, etc...

Here is some more info on the MF Fannie programs:  https://www.fanniemae.com/multifamily/