All Forum Posts by: Nick Schoch

Freddie's small balance program is still higher at $7.5 million for larger markets.

Which program do you direct more of your clients to?

Congrats on finding an investment.

Since the asset is stabilized, you will want to reach out to permanent lenders. I would start with local credit unions and banks since they can offer some of the lowest rates. Some credit unions will even offer the same pricing as banks without a prepayment premium.

I would also reach out to a Freddie Mac and Fannie Mae sellers to have them quote the loan as well.

Once you've gathered some quotes, compare them term-by-term and find the one that best matches your investment strategy.

Good luck.

Freddie and Fannie do offer small balance commercial mortgages on multifamily properties. These are comparable to bank loans in good markets.

Rather than explain their programs here, I can link you to their program parameters:

Freddie Small Balance Loan Program

Fannie Mae Small Balance Loans

The good news is that they are nationwide so if you're in a tertiary market, they should still have an offering for you.

If I understand correctly, you are purchasing a property where the seller is willing to finance 95% of the purchase price. I can't speak to any legal implications between seller financing and your syndication structure, but I would ask what an investor would want to know before participating in this transaction.

For example:

• When does the proforma cash flow support debt service?
• What are the growth assumptions built into the proforma cash flow? How do these assumptions compare to market guidance? Do these assumptions depend on factors external to the property (e.g. market rent growth) or do they depend on work performed by the manager (e.g. renovating units)?
• How does the seller financing compare to conventional bank or agency multifamily financing? (E.g., interest rate, interest rate fixed or variable, prepayment penalties.)
• Are there any covenants that allow the seller/lender to accelerate repayment despite paying the required debt service?
• If the property is unable to pay debt service, will the partnership issue a capital call to raise funds from the investor pool?
• Is there a chance I would be diluted in the event of a capital call?

It would be helpful if you provided more information about your scenario and what's making you nervous.

 As others mentioned, partnering to get more equity or looking for seller financing are your best options. 

These options will likely cost more than conventional financing, which makes sense given that you're either sharing equity upside or asking someone to take a higher risk debt position than a conventional lender would consider.

I would review the investment to see how fast you can pay down the principal and refinance with a conventional loan. That's the silver lining to a higher cost debt structure--you can refinance into a lower cost structure (watch out for prepayment penalties). Whereas with an equity partner, it's much harder to get them out of the deal later without paying them potentially much more than they paid in.

I am a loan officer at a large commercial bank. I'm saying that the appraiser takes 3 weeks minimum to provide a complete self-contained appraisal. Perhaps your appraisals are more simple? I.e. a summary appraisal report or limited appraisal report?

2 weeks for a commercial loan?

That's impressive, MikeOH. It takes me a minimum of three weeks to get an appraisal done (and that's a quick one).

We have an internal appraisal group that orders and reviews appraisals. As an underwriter, I am not allowed to speak with the appraiser nor do I select the appraiser. Our internal appraisal group puts the appraisal out to bid and selects an appraiser from an approved list. This is per the OCC regulations.
www.occ.treas.gov/ftp/bulletin/2005-6a.pdf
Also see Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA);
Amendment to FIRREA effective June 7, 1994; Interagency Appraisal and Evaluation Guidelines (October 7, 1994); Uniform Standards of Professional Appraisal Practice (USPAP)

I haven't seen or heard of any changes from the current policy.