Multi-Family Market Update

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.

Insurance Companies

• 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

• 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.

Agencies

• 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.
• Non-recourse.
• 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.

CMBS

• 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.