Multifamily Fixed Rate Financing for 25 to 30 Years in CA?

Question

Our company owns and manages two multifamily properties:  84 units  (28 triplex buildings) in one location and 27 units (9 triplex buildings) in another, all in Northern California area, in secondary markets (not San Jose, San Francisco, etc.). I am trying to refinance both of our loans for these properties, both perform very well, and both are current LTV in 50% range (conservatively). We are just looking to refinance for the current loan balance, so assume 50% LTV on a new loan. Our bank has offered a few different options, 10 yr fixed rate/30 yr amortization and 15 yr fixed/15 yr amortization. No long term fixed rate. Ideally we want to lock in a rate for 25 to 30 years. Does anyone have any suggestions or can share their own experiences looking for 25 to 30 year fixed rate financing on multifamily properties? Loan amounts are $7.45M and $2.23M. Thanks in advance for any help!

James Kojo · Answer

FHA backed multi-family mortgages have outrageously good terms (85% LTV, 35 year fixed term, rock-bottom rates, non-recourse.) However, you'll probably have a some sticker shock when you see the fees and the timelines. For that reason, they only pencil for loans of 3M and more (which fits your big complex, but not your small.)

Fannie also has a small balance loan for your smaller deal, and I believe they can do longer terms.

I have a company that i've talked to about both. PM me and I'll share the name, as I don't know what the rules are about putting people's personal info up here.

Otherwise, you can just google around for FHA 223(f) and Fannie Mae multifamily loans.

Hope that helps!

James

James Kojo · Answer

@David K. You have surpassed my knowledge in this area, so I wouldn't presume to advise you further. :)

That said, I have talked with @Tom Keating about commercial loans, and I found him to highly knowledgeable and helpful on the subject. He does a poor job of advertising it here on BP, but he works for one of the few big firms who originate Freddie Mac debt, so he's eminently qualified to advise you on the subject. If he's offering a call with you, I'd take him up on it. :)

Good luck!

James

David K. · Answer

@Tom Keating thanks for your input. I have already gotten quotes through the current lender for Fannie 15/20/30 year fixed rate loans, all amortizing over 30 years. I am looking at buying down the yield maintenance period for additional flexibility to 10 years. The loan is Tier 4 in terms of LTV & DSCR (lowered rates due to higher tier) and I've been offered rates of 4.33%, 4.58%, and 4.65% respectively. Loan origination fee is 0.5%. I am also looking into Fannie's Green Rewards program which would drop those rates another 30 bps, I'm not sure if that will be an option for us or not. In hearing the requirement for the HUD FHA, I don't think that's a loan we would be interested in looking at given the higher reserves, requirement for audits and necessary approvals on distributions from the ownership entity.

My thought process is it is safer to lock in a longer term rate today (ie: 30 year option) even though it will be more expensive in comparison the other 2 options. Rates today are historically low and I think I'd rather have a guaranteed rate than roll the dice in 15/20 years when we want to refinance and have no clue where rates will be. Then again, we could just have the funds to pay it off at that point in 15/20 years and we could have paid the extra interest for no reason. These income producing properties are a good source of income for our business especially in the tough times to cover overhead when we aren't building homes. Either way the payment will be lower given the 30 year amortization on all these loan options, so the cash flow will be good. In 15 years the 30 year loan will have cost us about $341K more in interest than the 15 year loan, in 20 years the 30 year loan will have cost us $95K more in interest than the 20 year loan. In 15 years, the 20 year loan will cost $266K more in interest than the 15 year loan. That's how I am evaluating these options.

Any input would be appreciated. @James Kojo

Tom Keating · Answer

@David K., I believe the current lender is offering you Fannie Conventional Commercial Financing, unless I am mistaken, but the terms seems to be of that. The small balance loan programs are different and offer different prepayment options in addition to Yield Maintenance. Since CBRE can originate the small balance loans we likely can offer less of an origination fee.  The larger property would be able to fit in both the Small Balance Program and the conventional program, however the smaller property would make a lot more sense in the small balance loan program.  Also, another thing to note, it is much more beneficial for the borrower to go directly to a seller/servicer who can originate this debt directly.

@James Kojo, I appreciate the kind words. I also agree that I do a poor job on advertising my knowledge through my lack of information on my profile.

@David K. I would be more than happy to set up a call to discuss the options I think you have in addition to the terms your bank is offering.

Tom Keating · Answer

@David K. as @James Kojo has stated, I think your best option on these is either the Freddie or Fannie Small Balance Loan program. These programs offer 80% LTV on refinances, all non-recourse debt with flexible prepay options.  The FHA loans are very fee heavy along with the fact it can take up to 6 months to close.  I would love to discuss these deals further with you.  Please PM your email and we can discuss.

In order to PM, you'll have to click onto my name, accept my colleague request, look at the top right corner of my profile and click "send message". Thanks David, look forward to talking with you.

Marco G. · Answer

I have read about (but never tried) offering to open a large CD for a 6 or 12 month term as an inducement. The thought is that the deposit will allow them to leverage it into more lending based on whatever their capital ratios requirements are.

I’d wait to see what they say and then see if you can push it further with the inducement. Just be mindful of the FDIC limits.

David K. · Answer

@Marco G. the quotes were through our bank. Yes they keep commercials loans on their books so they can be more flexible...I had another conversation with them since I posted this and they are going to re-look into the possibility of 20 or 25 year fixed rate, although he said they don't normally offer fixed rate over that length of time. 30 year fixed rate will probably not be an option. Yes option 2 was 15 year fixed, 15 year amortization. The concern with that is the cash flow. With the 10 year fixed/30 year amortization options, cash flow is good, we just don't want to be sitting in the same place in 10 years as we are today, and who knows where interest rates will be.

James Kojo · Answer

Glad to be of help. One thing to keep in mind is that FHA/HUD loans are run by the government, and thus you're dealing with government employees. I hear it can take up to 6-months to get it done! They are probably best suited for refinancing, but not necessarily purchases unless you find a very patient seller. :)

James

David K. · Answer

Thanks @James Kojo. I submitted a quote request for the FHA 223(f) as you suggested. As you mentioned, up front fees look very high compared to the options I currently have, but it will be great to compare. Thank you for your comment. Would love the name of the company you used except I couldn't figure out how to PM. I tried connecting with you, maybe that will work.

Multifamily Fixed Rate Financing for 25 to 30 Years in CA?

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