All Forum Posts by: Conor Freeman

@Scott Spicer Rick and Marty are correct on the Freddie SBL product - it's a great program but has a hard floor of $1mm. If the deal is local to you in Arizona, there are some great banks in that small balance space who can offer 10-year fixed rate money on 25-30 year amortizations / high 3% rates and they may be able to get up to 75% LTV. Try Washington Federal or First Fidelity; Our Phoenix team has done a lot of small-balance deals with them. Let me know if you need contacts.

@Arn Cenedella Yep you nailed it. The LTV's above are maximums and DSCR's are minimums. More often than not we're constrained by debt service. In higher cap rate markets we're able to get full leverage (>5.5%-6.0% cap rate) but your NOI and Freddie's NOI will be different and max leverage is tough to achieve in smaller markets with a higher DSCR minimum.

For underwriting purposes, take the in-place rents, minus the greater of actual vacancy, economic vacancy, or market vacancy with a 5% minimum. Plug in a market management fee that is similar to in-place (3%-5%) and add $250-$300/unit/year in reserves. That will get you close to Fannie/Freddie's NOI.

@Gregory Schwartz Fannie Small Balance isn't as competitive as Freddie SBL at the moment. They're pretty much leaving that part of the business to Freddie and focusing on larger stuff. Fannie will still do small deals but there is a large increase in spread for deals under $6mm and it pushes rates well into the 4%'s. Freddie SBL has an excel list of every county in the country and whether they consider it very small, small, standard, or top. I can send it to you if you would like. The sizing for the market tiers with Freddie is:

Top: - 80% LTV Acquisition, 80% LTV refinance, 1.20x DSCR

Standard: - 80% LTV Acquisition, 80% LTV refinance, 1.25x DSCR

Small: - 75% LTV Acquisition, 70% LTV refinance, 1.30x DSCR

Very Small: - 75% LTV Acquisition, 70% LTV refinance, 1.40x DSCR

Like others have said, 5 units and up and small towns are okay if the deal makes sense. Freddie SBL is currently pricing in the 3.5% - 4.0% range. Hope this helps! 

@Spencer Gray The Freddie floating-rate deals are on fire right now, a lot of our clients are taking advantage of them. Correct that they're in the 2.40%-2.60% range but the minimum loan amount is typically $7.5mm, so probably not a fit for an 8-plex, unfortunately.

@Aayush S. Terms on 5+ units should 5, 7, or 10 years on a 30-year amortization with rates in the high 3%'s / low 4%'s. Freddie and Fannie's small balance loan program starts at $1mm so depending on the location it may be too small for us. I'd start calling local banks. If you DM me the market I can pull a report showing all the apartment loans financed by banks in the area. Happy to pass it along to you. 

@Chris Brown If your investor agrees to a 50/50 split and is putting up the majority (or all) of the equity in exchange for your management I would sign that contract TODAY!

In the private equity world, joint venture equity is typically a 90/10 split of the required equity (90% investor/10% sponsor). The return spits are driven by IRR hurdles on a tiered-waterfall structure. Recent example: up to a 12% IRR the returns go 80% investor/20% sponsor, at 16% its 60/40, and at 18% it becomes 50/50. If the equity contributions are more balanced, say 70% investor/30% sponsor, those hurdles would come sooner. Also, JV equity investors will typically request a 6%-8% preferred return for the investment.

For your purposes, that may be too complicated but I would say if the investor balks at 50/50 off the bat, suggest a tiered approach where they receive more initially and then after certain hurdles are met, it evens out. Equity is the most expensive portion of the capital stack due to its risk position so I'd anticipate some pushback on 50/50 right away.

-Conor

@Weina Shi From a lending perspective, it may be difficult to find financing if you split the business value away from the real estate value. Self-storage loans are typically derived from the rent the self-storage property generates, much like multifamily. If I'm understanding correctly, you're essentially looking to split the business out to where "the business" (you) receives the tenant's rent and then that entity pays the "landlord" (also you) on a master lease, pocket-to-pocket. In my experience, we've always financed your original structure with no master lease. Lenders will underwrite the newly assessed taxes regardless, as they always look to see how the property would operate if they had to take it back. 

I know a few small balance CMBS shops that can finance these (be wary of lenders without capped cost programs as lender's legal can run the bill up to $30-$50k even on small loans). Banks are obviously an option and some of our small balance life insurance companies are aggressive on self-storage.

I understand your ultimate goal is to build out more units in addition to the existing ones. My suggestion would be to work with a lender who is active in self-storage construction. They should be able to bifurcate the financing structure to where they finance the existing project with permanent debt, then provide construction financing for the next phase. It would need to be the same lender because you may need to redraw the parcel, stripping that 1st lender of land value. If the lender knows they're getting the construction loan on the next phase, they should be fine with it. 

This doesn't really answer your tax question. Like others have said, I would refer to your counsel, but wanted to chime in on the financing aspect. Let me know if you need any help.

-Conor 

It might be on the smaller side, but check with Corevest or Arbor. I have contacts if you need them.

Hey Dan, I'm not sure if this pertains to Fannie and Freddie's residential business (1-4 units) or their multifamily business (rental properties 5+). On the multifamily side, its business as usual - the FHFA who regulates the agencies has allocated $80B each for Fannie and Freddie in 2021. We're a direct lender for both and clipping about $75mm in applications per week. Hope this helps. 

Conor 

@Amanda Sokol I just signed up a 55 unit deal in Canton Michigan with the following terms through our Freddie program:

$2.4mm loan 

75% LTV / 1.30x DSCR

10 year deal / 2 years interest only

30 year amortization

Non-recourse

3.56% fixed

Ping me if you'd like to discuss the deal and the reasons why you think we cant go agency... This MI deal was with a foreign borrower and his first deal in the US. I also have some lifeco's in this space that are non-recourse and like multifamily. Also, thanks @Dennis Tierney for tagging NorthMarq, our Omaha team is great! 

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