Multi-Family Market Update
June 8, 2017
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 appetite for multi-family properties, as many Life Companies are underweighted in apartments and are looking to increase allocations.
- Aggressive long term fixed rates with spreads that are thin to win for low leveraged high quality properties (rates as low as 3.40% for 10 years).
- With interest rates near 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.
- Banks continue to provide competitive short-term loans (floating, 3, 5 and 7 years).
- Minimum loan amounts are as low as $500,000 and typically max out at $10MM.
- Depending on the transaction, Bank LTV’s can get up to 75% LTV.
- While most Banks are able 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 are now competing with banks in core and standard markets to gain market share.
- 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.
- 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.
- If economics allow, borrowers may obtain future funding from the agency lenders.
- 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.
- Rigid post-closing Borrower service due to the securitized loan product.