All Forum Posts by: Ian Stuart

In order to get out of Freddie Mac's "Limited Multifamily Experience Sponsor" category, you must have ultimate ownership & control of either (i) 3 multifamily properties [1 of which you've owned for at least 2 years], or (ii) 1 multifamily property which you've owned for at least 5 years. 

That said, if the property you're attempting to finance is materially larger than the properties you currently operate (IE - you're trying to finance a 30 unit building, but have only operated a series of 4-plexes to date), then sometimes this rule gets thrown out the window and you'll still be subject to the "Limited Multifamily Experience Sponsor" re-sizing parameters. 

Yes. That said, if you're barely making the net worth cut even with home equity - the agencies will likely at the deal with additional scrutiny. This is particularly true if you're a new agency borrower with limited multifamily experience. 

For future reference, the agencies will often adjust LTV/DCR by -5% LTV / -.05x DCR for loans involving new agency borrowers with minimal experience / like size AUM / etc.

For example - say you're a limited experience owner/operator buying a 30-unit deal in downtown Seattle (a Freddie Mac SBL "Top Market"). While this loan typically would be sized to 80% LTV; 1.20x DCR - Freddie SBL may decide to adjust down to 75% LTV; 1.25x DCR (-5% LTV / +.05x DCR) to reflect the new borrower risk.

In light of the recent 50bps rate cut, we're starting to see an uptick in requests for Freddie Mac SBL and Fannie Small Loan multifamily loan quotes. Given the recent pickup in activity, I thought this would be a good time to re-hash the agencies' small balance multifamily loan programs for future reference. 

In short, Freddie Mac & Fannie Mae offer 70-80% LTV, 1.20-1.25x DCR, 30-year amortization, 5-30 year term, partial-full term IO, non-recourse permanent financing for owners of multifamily apartment buildings throughout the United States. Rates currently range from the high 4.00% - mid 5.00%'s depending on the asset / borrower / location.

Freddie Mac & Fannie Mae multifamily loans essentially offer low rate, high leverage, non-recourse permanent financing options that are backed by the full faith and credit of the United States government. They're like bank & credit union loans... but with (i) more leverage, (ii) more interest only, (iii) [typically] lower rates, (iv) non-recourse structure, and (v) no deposit requirements / no requirement to start "a relationship". 

Minimum loan size is $1,000,000. Cash out refinances are acceptable within reason. Borrowers need to have 9 Months' P&I worth of liquidity (cash / stocks / bonds / crypto / etc), and 100% net worth relative to the loan amount. Retirement accounts don't count towards liquidity, nor do non-liquid investments like VC, etc. 

Berkadia is #1 Freddie Mac Optigo, #2 Fannie Mae DUS , and #1 HUD/FHA multifamily lender in the country with 50+ life company correspondent lending relationships. We also broker multifamily loans to banks, credit unions, CMBS, debt funds, and private lenders. Next time you're in the market for multifamily financing (or generally speaking, want to learn more about different multifamily loan programs available to you), feel free to reach out for guidance.

FREDDIE MAC SMALL BALANCE LOAN (SBL)

Loan Purpose: Permanent Financing (Refi & Acquisition)

Loan Proceeds: $1,000,000 - $7,500,000

Loan Sizing: 80% LTV; 1.20x DCR (Top Market)

Loan Sizing: 80% LTV; 1.25x DCR (Standard Market)

Loan Sizing: 70-75% LTV; 1.30x DCR (Small Market)

Loan Sizing: 70-75% LTV; 1.40x DCR (Very Small Market)

Amortization: 30 Years

Loan Term: 5-10 Year Term (Fixed), 10 or 20 Years (Hybrid ARM)

IO Term: Partial Term IO (80% LTV; 1.20x DCR); Full Term IO (65% LTV; 1.35x DCR) (Top Market)

IO Term: Partial Term IO (80% LTV; 1.25x DCR); Full Term IO (65% LTV; 1.40x DCR) (Standard Market)

IO Term: Partial Term IO (70-75% LTV; 1.30x DCR); Full Term IO (60% LTV; 1.45x DCR) (Small MArket)

IO Term: Partial Term IO (70-75% LTV; 1.40x DCR); Full Term IO (60% LTV; 1.55x DCR) (Very Small Market)

Rate Types: Fixed & Hybrid ARM

Rate Lock: Rate Lock @ Application

Non-Recourse: Non-Recourse w/ “Bad Boy” Carveouts

Prepayment: Standard - Greater of YM or 1.00%

Flexible Prepay: Flexible Options – Stepdown & Extended Open/Par Periods

Rate Buydowns: Yes – Rate Buydowns Available Up to 2.00%

Assumable: Yes – Assumable Loan

Cash Out Refi: Yes – Cash Out Refi OK

FANNIE MAE SMALL LOAN

Loan Purpose: Permanent Financing (Refi & Acquisition)

Loan Proceeds: $1,000,000 - $9,000,000

Loan Sizing: 75-80% LTV; 1.25x DCR

Amortization: 30 Years

Loan Term: 5-30 Year Term

IO Term (PTIO): Partial Term IO @ 80% LTV; 1.25x DCR

IO Term (FTIO): Full Term IO @ 65% LTV; 1.35x DCR

Rate Type: Fixed Rate

Rate Lock: Rate Lock @ Loan Commitment

Rate Structure: Treasury Yield + Spread

Non-Recourse: Non-Recourse w/ “Bad Boy” Carveouts

Prepayment: Yield Maintenance; 3 Mos @ 1.00%; 3 Mos @ Par

Flexible Prepay: Flexible Prepayment Options Available

Escrows: Taxes, Insurance, Replacement Reserves

Rate Buydowns: Yes - Rate Buydowns Available Up to (1.25%-2.00%)

Assumable: Yes – Assumable Loan

Cash Out Refi: Yes – Cash Out Refi OK

What's the loan size, business plan, asset quality / size, entry/exit metrics (LTV/LTC, DCR, DY), and desired loan terms?

In the multifamily space, the primary bridge capital sources are (i) banks & credit unions, (ii) private / hard money lenders, (iii) debt funds, and (iv) life companies.

If you're buying multifamily properties, you absolutely need to consider Freddie Mac, Fannie Mae, and HUD/FHA financing options.

Multifamily is the only CRE asset class where the government actively subsidizes the cost of capital via "the agencies" (Freddie / Fannie / HUD). By limiting your exposure to banks and credit unions, you're leaving significant amounts of money on the table, along with superior terms (IE - 30 year amortization, partial-full term IO, non-recourse structure, etc.)

Below are summaries of the Freddie Mac Small Balance Loan (SBL) and Fannie Mae Small Loan multifamily loan programs. Berkadia is the #1 Freddie Mac and #2 Fannie Mae multifamily lender in the country - reach out if you need a quote.  

Freddie Mac SBL (Top Markets)

Loan Purpose: Permanent Financing (Refi & Acquisition)

Loan Proceeds: $1,000,000 - $7,500,000

Loan Sizing: 80% LTV; 1.20x DCR

Amortization: 30 Years

Loan Term: 5 / 7 / 10 Years (Fixed); 10 / 20 Years (Hybrid ARM)

Partial Term IO: Available @ 80% LTV; 1.20x DCR

Full Term IO: Available @ 65% LTV; 1.35x DCR

Rate Types: Fixed & Hybrid ARM

Rate Lock: At Loan Application

Non-Recourse: Non-Recourse w/ "Bad Boy" Carveouts

Prepayment: Greater of YM / 1.00%

Rate Buydowns: Up to 2.00% 

Assumable: Yes - Assumable Loan

Cash Out: Yes - Cash Out Available

FANNIE MAE SMALL LOANS

Loan Purpose: Permanent Financing (Refi & Acquisition)

Loan Proceeds: $1,000,000 - $9,000,000

Loan Sizing: 80% LTV; 1.25x DCR

Amortization: 30 Years

Loan Term: 5 / 7 / 10 / 12 / 15 / 30 Years

Partial Term IO: Available @ 80% LTV; 1.25x DCR

Full Term IO: Available @ 65% LTV; 1.35x DCR

Rate Types: Fixed 

Rate Lock: At Loan Commitment

Non-Recourse: Non-Recourse w/ "Bad Boy" Carveouts

Prepayment: YM; 3 Mos. @ 1.0%; 3 Mos. @ Par

Rate Buydowns: Up to 2.00%

Assumable: Yes - Assumable Loan

Cash Out: Yes - Cash Out Available

MULTIFAMILY EGI INCOME

Multifamily GPR: Rent Roll Rents w/ Laggards @ Market

Less - Concessions: 0.50%-1.00% (Depending on market)

Less - Vacancy: 5.00%-7.00% (Depending on market)

Less - Bad Debt / Delinquency: 0.50%-1.00% (Depending on market)

Multifamily NRI= Multifamily GPR - Concessions - Vacancy - Bad Debt

Other Income: Get a rent roll detail showing all the other lease charges by unit. IE - pet rent, parking fee, utility reimbursement fee, storage fees, etc. Trend up a bit if you think they're under charging. 

Multifamily EGI = Multifamily NRI + Other Income

COMMERCIAL EGI INCOME

Commercial GPR: Current leases / lease matrix. Maybe trend the rents if any lease escalations coming up. 

Vacancy: ~10.00% (Depends on market) 

Commercial EGI: GPR - Vacancy

TOTAL EGI INCOME

Multifamily EGI + Commercial EGI 

OPERATING EXPENSES

Real Estate Taxes: Do a post sale tax analysis to see how much your tax bill will rise post closing. Depending on the county, the assessor will pick up your sale price and adjust your taxable value to 70-100% of sale price.

Insurance: Have your insurance broker get you a soft quote based on your lender's insurance requirements. Probably $400-$800/unit assuming it's not a crazy building / market.  

Utilities: T12 +3%

Mgmt Fee: 6-10% (depending on market and onsite payroll)

Payroll: Maybe one free unit concession to an onsite who lives at building to assist with move ins etc (or not). Depends on mgmt fee and what you get included in that fee. 

R&M (Building R&M, turnover, grounds & landscaping): T12, break out any non-recurring capital expenses / renovations that current owner has baked in. Adjust for any old/new contracts you're removing or adding

G&A (Advertising, Office, Software, Etc: T12 adjusted for any old/new contracts you're removing or adding

Reserves: $250-$350/unit multifamily; $0.15/sqft commercial; $1.00/sqft commerical TI's

Total Expenses: Sum of all above expenses

NET OPERATING INCOME = Project EGI - Total Expenses

Proceed to look at multifamily / mixed use sale comps and make judgement call based on (i) going in / exit cap rate assumptions, (ii) $/unit, (iii) $/sqft, (iv) etc. If you're confident you can add another apt through the two empties, factor it into the exit income projections but dont forget to add the rehab cost to your cost basis projection so can calculate your return on cost basis. Due to to small location wouldn't necessarily bet on cap rate compression. 

Good luck!

IMO just raise rents on lease expirations and turnovers. Allows you avoid a significant vacancy spike & cash flow hit, all the while you gradually grow NRI rent collections over 12-36 months. 

I'm sure your hard money bridge lender of choice could also get you juicy 80-90% LTC financing to fund acquisition and value add reno capex costs. After you've reno'd and trended rents, either (i) sell / cash out or (ii) cash out refinance with a long term 10+ year fixed perm loan, and proceed to own/operate. 

Assuming you're looking for a fixed rate permanent loan on a stabilized property, I recommend regional & national banks. Think Chase, Wells, US Bank, Key, and Everbank - plus any regional players in your market active in the multifamily space.

If you're looking for a value-add rehab / bridge loan - try both bank/cu's and private capital / hard money lenders. Hard money will charge you an arm & leg (additional points, high rates, etc.), but they'll get you the leverage you need. Google "private capital multifamily" and "hard money multifamily" for some leads on local hard money lenders in your lender and reach out directly. They'll hook you up with high leverage, full term IO financing and will cover some of your planned renovation / capex costs.  

Hi Sandra - In my experience most GP's adhere to the following trajectory. 

1. Establish Track Record (Small Deals & Personal Equity): Most GP's start by acquiring/developing smaller properties where they alone can fund the equity side of the capital stack (IE - no raise). Maybe they raise some equity direct from immediate family (IE - mom/dad/sister/brother/grandparents/uncles/aunts/cousins), but the majority of the skin in the game is the GP's own. The goal here is to establish track record and operating credibility, because frankly no LP with half a brain is going to roll the dice on an inexperienced sponsor without operating experience. 

2. First Raise (Midsize Deals & Small-Moderate Family/Friends Raise): After the new GP put points on the board and establishes operating track record, they begin raising small-moderate equity commitments from family & friends who will co-invest as either LP's or JV equity partners. Once the equity commitment(s) / fund is raised, the GP finds deals and deploys the raised capital. Assuming the GP is any good, their deals will go well and they'll make their investors (and themselves) money. This further solidifies their operating & returns track record, which paves the way to market your firm to professional investors & LP's outside your direct bubble of family & friends. Once you have a marketable track record, you can start the "ramp up" phase.

3. Ramp Up (Bigger Deals & Moderate-Big LP Raise): Once the GP establishes track record and operating prowess, they start marketing equity raises to professional investors & LP's outside their immediate circle of family & close friends. Depending on how good the GP's prior returns have been & marketing strategy, they can raise 70-95% of the total equity required to take down their next deal. Because the GP has track record, it's easier to raise capital from LP's. Reason being? The LP's aren't worried that you'll blow their deal up. 

Based on what you're saying, sounds like "your" LP investors aren't really you LP investors. These LP's are blowing you off. I guarantee that these same LP investors are telling 20+ other GP's the same thing... "bring me a deal and ill bring you the equity". IE - they're stringing you along to get exposure to deal flow, and they're not making any tangible or material commitments to being your financial partner, unless it's an absolutely incredible deal that they cannot afford to miss out on. Frankly - this space has become extremely saturated over the last 10 years - so the odds that you find this one "diamond in the rough" deal is relatively low all things considered. 

I recommend taking down smaller deals with your own / immediate family equity first to establish track record. If you need additional capital outside what a traditional bank or credit union would give you on the debt side, maybe start exploring higher leverage private credit / hard money options. Granted - these hard money guys don't play around with their rates and fees - but they'll get you more leverage and help you keep the equity requirements lower so that you can build up a strong track record and start taking down deals with your own / immediate family equity. 

Once you've got the track record, then LP's will be more inclined to forward commit and tie up their equity in a dedicated fund that your firm controls. This way, you have your cap stack sorted up front and you can fully focus on identifying and taking down deals. 

IDK if any of this helps but this what I have observed / experienced among the clients we work with. 

The podcast you mention is referencing (i) Freddie Mac Small Balance Loans ("SBL"), and (ii) Fannie Mae Small Loans, which are essentially government-backed CMBS loans.

Freddie & Fannie small balance loans range from 5-30 year loan term. Standard loan sizing 75-80% LTV; 1.20-1.25x DCR; 30-year amortization in Top & Standard markets. Partial term IO @ 1.20-1.25x DCR, full term IO @ 1.35-1.40x DCR. Rates are in the high 5.00% - low 6.00% range for "Mission Driven" assets with rents <=80% AMI Net Max Rents. These loans are all non-recourse, with carveouts for "bad boy" acts (IE - fraud, deliberate misrepresentation, abandoning property, etc.). Prepayment is typically either (i) Greater of YM / 1.00%, or (ii) YM; 3 Mos Open @ 1.0%; 3 Mos Open @ Par. Flex prepays (stepdowns, etc) are available but will cost additional bps. Cash out refis ok, but may result in slightly lower loan sizing.

With Freddie Mac SBL, you rate lock at loan application (no interest rate risk during underwriting). With Fannie Mae Small Loans, you can't rate lock until Loan Commitment is issued, typically ~2 months after you go under application. 

Berkadia is the #1 Freddie Mac and #2 Fannie Mae multifamily lender in the nation. Reach out with questions. 

Agency Multifamily Small Balance Loan Rates (05.31.24)

-Ian