Real Estate Loans for Apartments and Mobile Home Parks.  There are many options to consider when shopping for the right loan for your apartment complex, each have advantages and disadvantages.  Included in this web site are many of the more popular loans.  Please call to discuss your particular situation.

Fannie Mae – Highlights:  Loan from $1,000,000 and up.  Two basic programs – both loan programs require the principal(s) to have prior ownership/management experience in apartments.  Fannie Mae also has liquidity requirements of the principals. It is best to call Mike Caffrey to discuss these requirements to see if Fannie Mae is an option.

  • Small loan program and the large loan program. Small loan program covers loans from $1,000,000 to $3,000,0000 ($5 million in major MSA markets).
    • Reduced documentation requirements, low closing costs.
    • Non-recourse loan terms
  • Large Loan Program:
    • More options for loan products
    • Standard long form loan documents
    • Higher closing costs
    • Better interest rates than Small Loan Program

Fannie Mae Loan Programs:

  • Fannie Mae Small Loan Program – $1,000,000 to $3,000,000 ($5 million in the following MSAs: Boston, Chicago, Los Angles, New York, Orange County, CA., Sacramento, San Diego, San Francisco, Seattle, Washington, D.C.)
    • Terms of 3, 5, 7, 10, 15, 20 and 30 years available
    • Amortizations to 30-years.
    • Debt Service Coverage 1.25x.
    • Terms of 7+ years 80% loan to value (75% LTV is cash out).
    • Typically fixed third party costs are fixed at $10,000 for: appraisal, property condition report, processing fee, phase one environmental, lender site inspection, background check and lender legal.
    • Typically non-recourse loan terms – except for fraud, waste, misappropriation of proceeds, environmental and bankruptcy.
    • For more detailed information on the Fannie Mae Small Loan Program.

 

  • Fannie Mae Standard Loan Program: Starting at $3,000,000:
    • Terms of 3, 5, 7, 10, 15, 20 and 30 years available – Two years interest only possible.
    • Amortizations to 30-years.
    • Debt Service Coverage 1.25x.
    • Terms of 7+ years 80% loan to value (75% LTV is cash out).
    • Third Party Reports are on a bid basis, soft quote for lender legal. Normally, $12,500 will cover these expenses.
    • Non-recourse with standard exceptions for fraud and misrepresentation.
    • Expanded information on Fannie Mae Standard Loan Program.

 

  • Fannie Mae Affordable Housing Financing Program: $1,000,000 minimum
    • Eligible properties are those that participate in the Low Income Housing Tax Credit (LIHTC) program, are encumbered by a Housing Assistance Payment (HAP) contract or participate in the Section 8 program (either through vouchers or direct payments).
    • Terms of 7, 10, 15, 20 and 30 years available
    • Amortizations to 30-years.
    • Debt Service Coverage 1.20x.
    • 90% loan to value.
    • Third Party Reports are on a bid basis, soft quote for lender legal. Normally, $12,500 will cover these expenses.
    • Non-recourse with standard exceptions for fraud and misrepresentation     can be waived for 100% restricted properties.
    • For more detailed information of the Fannie Mae Affordable Housing Financing Program.

 

  • Fannie Mae Mobile Home Parks – Manufactured Housing: $1,000,000 minimum
    • Terms of 7, 10, 15, 20 and 25 years available (up to 30-years if Age Restricted)
    • Amortizations to 25-years (up to 30-years if Age Restricted)
    • Debt Service Coverage 1.25x.
    • 80% loan to value (75% LTV is cash out).
    • Minimum of 50-sites, 50% or more doublewide sites, and park must be rate 4 or 5-STARS.
    • Typically fixed third party costs are $12,500 for: appraisal, property condition report, phase one environmental, lender site inspection, processing fee, background check and lender legal.
    • Typically non-recourse loan terms – except for fraud, waste, misappropriation of proceeds, environmental and bankruptcy.
    • For more information on the Fannie Mae Mobile Home Parks – Manufactured Housing Program.

 

  • Fannie Mae Student Housing Financing: $1,000,000 minimum.
    • Terms of 3, 5, 7, 10, 15, 20 and 30 years available – Two years interest only possible.
    • Amortizations to 30-years.
    • 75% loan to value (70% LTV is cash out).
    • Dedicated Student Housing – Specifically cater to a student tenant base. Not readily convertible to conventional multifamily housing. Must be greater than 80% student occupied. Requires 12-month leases and parental guarantees. Food services not permitted. 20% of tenants are allowed to have lease terms of less than 12 months. Student Housing – Must be between 40% – 80% student tenancy.
    • Student Population Requirement, minimum of 10,000 students.
    • Typically non-recourse loan terms – except for fraud, waste, misappropriation of proceeds, environmental and bankruptcy.
    • Learn more about Fannie Mae Student Housing Financing Program.

 

Freddie Mac – Highlights:  Loans from $1,000,000 and up.  Two basic programs – both loan programs require the principal(s) to have prior ownership/management experience in apartments.  Freddie Mac also has liquidity requirements of the principals. It is best to call Mike Caffrey to discuss these requirements to see if Freddie Mac is an option.

  • Freddie Mac Small Loan Program: $1,000,000 to $6,000,000 (can go to $7.5 Million with 75-units or less in Top and Standard size Markets).
    • Fixed-rate loan terms of 5, 7 or 10 years. Hybrid ARM loan terms of 20 years with initial 5, 7 or 10 years fixed.
    • Up to 30years, interest only options also available on a case by case basis.
    • Debt Service Coverage Requirements (DSCR):
      • 1.20x in Top Markets
      • 1.25x in Standard Markets
      • 1.20x in Small Markets
      • 1.40 in Very Small Markets
    • Maximum Loan to Value (LTV):
      • 90% in Top and Standard Markets
      • 75% if acquisition in Small/Very Small Markets
      • 70% if cash-out refinance in Small/Very Small Markets
      • Generally fixed third party costs of $12,500 – includes appraisal, property condition report, phase one environmental, processing fee, lender site inspection, flood search and lender legal.
      • Typically non-recourse – subject to carve-outs
    • For more details on the Freddie Mac Small Loan Program.

 

  • Freddie Mac Standard Fixed Rate Loan Program:
    • Fixed rate Terms 5, 7 and 10-years. 30-years if not to be securitized.
    • 30-year amortization – with Interest Only Options available.
    • 1.25x Debt Service Coverage Ratio (1.30x if 5-year loan term).
    • 80% Loan to Value (LTV); 75% LTV 5-year term
    • Generally fixed third party costs of $12,500 – includes appraisal, property condition report, phase one environmental, processing fee, lender site inspection, and flood search. Lender Legal expense will be estimated at Application issuance.
    • Learn more about the Freddie Mac Standard Loan Program.

 

  • Freddie Mac Student Housing: $5,000,000 minimum
    • Loan Term 5, 7 and 10-years
    • Amortization up to 30-years
    • Minimum Debt Service Requirements 1.30x (1.35x if cash out)
    • Maximum Loan to Value: 80% (75% -if term less than 7-years)
    • Student Population not less than 8,000 students.
    • Specifically cater to a student tenant base. Not readily convertible to conventional multifamily housing. Must be greater than 50% student occupied. 12-month leases and parental guarantees are preferred. Food services not permitted. Must have minimum of 1 bathroom for every 2 bedrooms, and each apartment must have a separate full kitchen. Property must be located less than 2 miles from campus or on bus route.
    • Generally fixed third party costs of $12,500 – includes appraisal, property condition report, phase one environmental, processing fee, lender site inspection, and flood search. Lender Legal expense will be estimated at Application issuance.

 

  • Freddie Mac Senior Housing: $5,000,000 and higher (will consider small level on a case by case basis):
    • 5, 7 and 10-years (up to 30-years if fixed rate)
    • Amortization up to 30-years.
    • Acquisitions, refinance loans, bond credit enhancement and targeted affordable housing transactions.
    • Typically non-recourse loan terms – except for fraud, waste, misappropriation of proceeds, environmental and bankruptcy.
    • Eligible Property Types:
      • Independent Living Properties
      • Assisted living Properties
      • Memory care properties
      • Properties with a limited amount of skilled nursing (maximum 20% of NOI).
      • Any combination from list above.
    • Minimum Debt Service Coverage Ratio:
      • 1.30x – Independent Living
      • 1.40x if Assisted living and/or Memory care represent 50% or more
      • 1.45x if any contains skilled nursing (SNF license)
    • Closing Costs:
      • Freddie Mac Fee Greater of $5,000 or 0.15% of the loan amount:
      • Third party reports $25,000 +/- and Lender Legal $17,500 to $25,000 +/-.

 

 

FHA/HUD – Highlights of most popular FHA/HUD loans: Loans from $1,000,000 and up Loan term and Amortization 35-40-years: Maximum Loan to value 83% – 90% – Non-recourse:

 

Commercial Mortgage Backed Securities (“CMBS”), a/k/a Conduits:

Apartment loans are the most coveted property type when putting a CMBS loan pool together.  As a result CMBS originators offer lower interest rates to this category of commercial real estate. This is an excellent option to consider when the property or principals cannot secure a loan through one of the GSE (Government Sponsored Entities) (HUD/FHA, Freddie Mace or Fannie Mae).  CMBS loans, also known as Conduit loans bundle a number of loans and securitize the pool of loans.  While there are disadvantages to CMBS – they generally will lend more dollars than other lenders, offer a longer amortization and most of the loans are non-recourse.  The minimum loan size is generally $3 million, while some lenders have a higher minimum.  This lender usually requires a Lockbox to be setup at closing.  The Lockbox is not generally activated until or unless there is a Trigger Event (e.g. major tenant not renewing, a default).  When you need maximum dollars, or maximum amortization this loan product is worth investigating.  Learn more about Commercial Mortgage Backed Securities (“CMBS”), a/k/a Conduits.

Bridge loans – repositioning, minor to major rehab loans:  Loans start at $1 million with no real upper limit.  These are generally short term in nature between one and three years.  The purpose is to reposition a property through re-tenanting, remodeling, allowing time for the property to become economically stable to either flip and sale or refinance with a permanent loan.  The lenders charge 1% – 2% points up front and often have an exit fee of 1% when the loan is paid off.  Most Bridge lenders offer non-recourse loan terms.   Bridge lenders are best utilized when portfolio lenders are not willing to make the loan.  Special Bridge Programs are available for Apartment complexes.  The objective is to provide a credit facility that provides the funds and time necessary to stabilize the apartment complex so that the loan can be refinanced into an agency loan e.g. Freddie Mac or Fannie Mae or other institutional lenders.  Exit Fees are normally waived if refinanced with the same lender.

Insurance Company Lenders:  Minimum loan amount $750,000 no upper limit

Insurance companies have some of the best interest rates and lowest closing costs that rival a bank.  They generally prefer properties less than 15-years old (or older properties recently renovated).  They can offer more flexible terms and often will not establish escrow accounts for taxes, insurance or replacement reserves. We represent over 50 insurance companies.  Generally the small loans (under $5 million) will often require some personal recourse from the principals.  The maximum leverage is around 65% to 75% for most property types.  This is our go to lender for most property types.

National, Regional Banks and Credit Unions :  Minimum loan amount $500,000 upper limit is unique to each lender.

Many banks have a national and regional interest in originating loans on apartment complexes.  Most of these loans require the principals to provide a personal guaranty to the bank.  While a few will offer 10-year fixed rates most will offering terms of 3 or 5-year fixed rates with some offering a 10-year adjustable with a rate adjustment after 5-years.  Most will consider 20 and 25-year amortizations.  Loans are generally full recourse and can go to 75% and 80% loan to value.    Credit Unions will require the principal to be a qualified Member of the Credit Union.  Effective in early 2017 Federal Credit Unions have the legal authority to offer non-recourse loans.  However, very few are offering these loans, except on very low leverage.  A great benefit of the loans from a Federally Charted Credit Union is the absence of prepayment penalties.

 

Mezzanine Financing or Mezz Debt:  This provides the borrower with additional funds when the first mortgage lender (Senior Lender) will not lend as much money as needed to complete the transaction.  In simple terms, it is similar to a Second Mortgage, with one large exception, the collateral is normally not the underlying real estate rather the collateral is most often a pledge of your ownership interests.  For example, if the ownership is held in a corporation where the owners’ interest in the borrowing entity is held in the form of stock, the stock of the company would be pledged to the Mezzanine lender.  In the event of a default, the Mezzanine lender would foreclose on the stock and take control of the company (and underlying asset).  Most of the ownership structures we see are held in a limited liability company.  The ownership of these companies are most often held in units.  So, like stock, the units would be pledged to the mezzanine lender.  Because the mezzanine lender comes in at a higher risk level, their interest rates are higher than the typical first mortgage lender.  Rates for these loans very from lender to lender  based on the size, risk profile and property type.  Common rates for these loans range from 10% to 15% per annum with fees of 1% to 2%, plus closing costs.  These lenders and the Senior Lender will most often require an inter-creditor agreement.  At first glance the pricing for a Mezzanine loan, you might consider avoiding this type of loan.  Keep in mind the alternative is to bring in more equity.  There are two things to consider when you need more cash to bridge the gap between the Senior Loan (first mortgage) and the amount needed to close on a transaction.  The mezzanine loan can be paid off and will go away.  Whereas the equity stays in ownership, diluting your ownership and percentage of net income and tax benefits.  Additionally, you must looks at the costs of Mezzanine as a blend, or effective overall interest rate, when combined with the senior loan (first mortgage).  Mezzanine loans can increase the leverage on a property to 85%.

Assume the purchase price of a multi-tenanted office building is $10,000,000.  You have $2,000,000 equity to contribute towards the purchase. The senior lender with attractive rates will only go to 75%.  You are short 5% of the purchase price.

  • 5% senior interest rate on $7,500,000
  • 13% interest rate for the Mezz portion $500,000
  • The effective blended rate would be 5.50%

What would another investor charge to come in with 20% of the required equity?  These loans are often on non-recourse loan terms, co-terminus with the first mortgage holder’s loan.

CMBS loans that were originally placed with significant interest only periods, then a 30-year amortization on an 80% loan to value are sometimes in need of mezzanine funds to help refinance the maturing loan.  Or mezzanine loans could assist a buyer that wishes to purchase a commercial property subject to an existing loan with very expensive prepayment penalties.  It may make more economic sense to place mezzanine debt behind the existing senior loan and ride out the maturity of the existing Senior Debt then to refinance the balloon balances with a new loan.