With many investors focusing on multi-family properties as their favorite real estate asset class, it is essential to understand where multi-family properties fit in today’s dynamic capital markets. The following is a summary of how the major lender classifications look at multi-family financing.
- Large overall appetite for multi-family properties, as many life companies are underweighted in apartments and are looking to increase allocations with their existing portfolio.
- Aggressive long-term fixed rates with thin spreads that are geared to compete for low leveraged high-quality properties (rates as low as 3.25% for 10-year-fixed money).
- With interest rates still at all-time lows, life companies can provide long-term fixed rates from 10-30 years in duration.
- Loan amounts range from $1 million – $100 million.
- Able to finance class A, B and C properties.
- Interest-only available predicated on leverage.
- Insurance companies are typically focused on lower leverage loans, but in many cases can go higher LTV (up to 75%) as they are trying to attract this product type.
- Banks continue to provide competitive short-term loans (floating, 3, 5, 7 and 10 years).
- Minimum loan amounts are as low as $500,000 and typically max out at $20MM.
- Depending on the transaction, bank LTV’s can get up to 75% LTV.
- For top-tier markets, some banks can execute at low DCR levels (1.15x)
- While most banks tend to take on more risk, a trend has emerged to reduce LTV’s and interest-only options as we get further in the economic cycle.
- Banks continue to lure multi-family borrowers with flexible prepays and inexpensive execution.
- Freddie and Fannie have recently started to “tap on the brakes” for new production. Their spreads have increased dramatically from early in the year.
- Agencies continue to attract multi-family borrowers with interest-only options and loan amounts up to 80% LTV.
- Low-cost small balance Freddie and Fannie programs available for deals under $7.5MM
- Fixed-rate terms from 3-30 years.
- Agency lenders are very aggressive on affordable housing and mobile home communities
- The process can be demanding as lenders have governmental oversight.
- Agencies are finding new ways of providing rate incentives; for example, discounts are offered for low income and environmentally conscious properties.
- Can lend in secondary and tertiary locations.
- Spreads on CMBS executions are now competitive relative to agency executions.
- High leverage available (up to 80% LTV).
- Defeasance or yield maintenance prepayment penalties.
- Non-recourse execution.
- Loan amounts are typically $5 million and up.
- 10-year fixed rates.
- Interest-only available.
- Restrictive loan documents and higher legal expenses.