Assets America® offers multifamily loans and apartment loans on multifamily properties (properties with five or more units), including apartment buildings and large condominium projects. Our apartment loans and multifamily financing options include multifamily construction loans, multifamily acquisition loans, multifamily refinance loans, and multifamily bridge loans.
Characteristics of Multifamily Loans & Properties
Certain metrics are important when buying or building multifamily units, including:
- Loan to Cost Ratio: This denominator includes all costs to build the apartment building complex. We offer apartment construction loans with a loan to cost (LTC) up to 80 percent (80%), although we can go higher in certain situations.
- Loan to Value Ratio: This ratio compares the size of the multifamily loan with the fair market value of the apartment building property. We offer apartment loans LTCs up to 80%.
- Debt Service Coverage Ratio: DSCR is defined as the multifamily property’s net operating income (NOI) divided by its annual debt service. We look for DSCR ratios of 1.15 or higher.
Multifamily Construction Loans, Multifamily Acquisition Loans, & Multifamily Refinance Loans
Assets America® provides multifamily financing for the acquisition, construction (see below image) and refinancing of existing multifamily rental properties. Assets America® offers multifamily loan packages tailored to a specific project and a specific borrower’s set of unique requirements. Our primary apartment loan funding sources include the following:
Fannie Mae Multifamily Loans
Fannie Mae (the Federal National Mortgage Association or FNMA) offers its Delegated Underwriting and Serving (DUS) program for mortgage-backed securities (MBS) backed by multifamily properties. In most cases, each MBS is backed by a single multifamily property. Lenders in the DUS program perform their own underwriting, approval and loan servicing, within Fannie’s overall guidelines. Fannie guarantees its partners’ multifamily loans are paid on time and repaid in full.
DUS is popular because of semi-flexible terms, low rates and ability to structure complex features like renovations and add-ons. DUS multifamily loans feature life-of-loan servicing without another master servicer or B-piece buyer. In other words, Fannie shares risk with investors by eschewing the sale of mezzanine bonds or B-piece subordinate bonds, thereby aligning its interests with those of the investor. DUS lenders can seek out multiple bids from investors to benefit borrowers, a unique feature that minimizes rates. Fannie Mae guaranteed loans have the following features:
- Size: Starting at $3 million with literally no maximum
- Terms: 5, 7, 10 and 12 and 30-year terms with 30-year amortizations
- Rates: Fixed and floating rates available
- LTV: 75 to 80 percent, non-recourse in most cases
- DSCR: Minimum 1.25 DSCR, depends upon the loan to value
- Rate Lock: Standard 30 to 90 days, early 45 to 180 days ahead of closing
- Prepayment: Various options available
Fannie Mae multifamily financing is selective in regards to the financial strength of borrowers. In addition to the DUS program, Fannie also offers programs for affordable, senior and student multifamily housing.
Freddie Mac Multifamily Loans
Freddie Mac (the Federal Home Loan Mortgage Corporation or FHLMC) offers apartment loan guarantees under its Freddie Mac Multifamily Loan platform. In most respects, the FHLMC program is similar to Fannie’s, with the following features:
- Size: Starting at $5 million with no maximum
- Terms: 5 to 30 years, with up to 30-year amortizations
- Rates: Fixed; interest-only rates are available
- LTV: Up to 80% LTV, non-recourse in most cases
- DSCR: Minimum 1.25
- Rate Lock: Standard 60 to 120 days, additional options available
- Prepayment: Various options available
Freddie also offers Small Balance Multifamily Loans of $0.75 million to $7 million, though here at Assets America®, our minimum loans typically start at $5 million. Freddie Mac multifamily financing is selective regarding the financial strength of borrowers.
Multifamily Bridge Loans, Multifamily Construction Loans to Multifamily Mini-Perm Loans and Multifamily Permanent Take-Out Loans
Multifamily bridge loans are used for multiple purposes. These bridge loans can be used for the acquisition of multifamily vacant land, for multifamily construction funds, and for the lease up and stabilization of apartment building property (multifamily stabilization is considered to be 90% leased for a minimum of 90 days, though 95% leased for 180 days is preferred).
Bridge loans are also used for multifamily rehabilitation projects and to address financial, legal or borrower credit issues and also apartment property issues. Multifamily Bridge loans typically have terms from 12 to 18 months with a couple of 6-month extensions built-in to the loan docs. Mini-perm loans are a type of bridge loan that require a Certificate of Occupancy on the multifamily property. Mini-perm bridge loans carry the property until a take-out loan can be finalized. Multifamily take-out loans typically have terms from 5- years to 30-years and they require a bare-minimum of 90% lease stabilization for a minimum of 90 days known as “90 for 90.”
Multifamily Loans from Banks (Community and Regionals)
With greater than three decades of experience, Assets America® has developed a network spanning literally thousands of regional and community banks to fund all kinds of multifamily loans, from multifamily property acquisition to apartment construction loans to apartment building refinancing. Unlike HUD loans, apartment loans from banks require underwriting that assesses the creditworthiness of the borrower. For borrowers with good credit, a bank loan offers fairly low interest rates and doesn’t necessarily have as long of a list of requirements you will find on governmental multifamily loans.
Life Company Multifamily Loans
Life insurance companies offer very competitive rates for large balance apartment loans, although they often provide less leverage (lower LTC) than other multifamily loan sources. This is especially true for cash-out refinances. Generally, life companies are extremely selective and extend multifamily loans on only the highest quality, Class-A apartment loan projects.
Mezzanine Multifamily Financing
Mezzanine construction loans are employed when the borrower seeks a higher level of leverage than can be provided on the primary debt (the first mortgage). Mezzanine multifamily loans are junior to primary debt and are collateralized by a second lien on the multifamily property and/or by the borrower’s private preferred equity. Mezzanine construction debt is handy if your primary, non-recourse multifamily financing has a 55 percent LTC limit that you wish to increase by adding additional debt to the capital stack in order to increase the total multifamily funds available to construct the apartment building project. You can generally obtain up to 90% combined loan to value (CLTC) on a multifamily mezzanine loan financing, which may offer features such as non-recourse terms and interest-only payments. The term of the secondary multifamily mezzanine loan is coterminous with the primary multifamily loan.
Private Money Multifamily Loans
Multifamily Private Money Loans from accredited multifamily investor funds and other non-accredited multifamily investor funds as well, is often used to source bridge loans at or near the beginning of the apartment complex construction phase, and can also be used for multifamily acquisition, multifamily rehabilitation and other multifamily loan requirements. Typically, money from accredited investors is pooled together under professional management and invested in projects like multifamily buildings. However, due to the higher interest rates of private money loans, higher points, and in general substantially higher closing costs on private money multifamily loans, a clear exit strategy is paramount to the overall success of the apartment project. Assets America® works with a network of private money lending sources to finance apartment loans from acquisition, through construction and generally, Assets America® will source and put together the entire debt stack from acquisition through construction (see below 3D rendering of a mixed use development, multifamily over retail; 3 over 2), through multifamily takeout loans.
HUD 223(f) programs insure multifamily loans from HUD-approved lenders for the purchase or refinance of multifamily rental properties. The apartment loan project must have at least five apartments (that’s the definition of multifamily) with baths and kitchens and must have been completed or substantially rehabbed at least three years prior to closing on the HUD 223(f) loan program. HUD 223(f) loan programs allow twelve (12) months post-closing to complete non-critical repairs. Properties requiring substantial rehab are not eligible for this program. Loan limits are:
- Market-Rate Projects: 83.3% LTV
- Affordable Housing: 85% LTV
- Rental Assistance Properties: 87% LTV
- HUD 202 Elderly Low-Income Properties: 90% LTV
Mortgage terms range from 10 to 35 years, or 75 percent of the estimated life of the physical improvements.
Common Terminology for Multifamily Loan Financing
Amortization The paying off of debt in regular installments over a period of time
B-Piece Buyer Someone who purchases B-rated and BB/Ba-rated bond classes, in addition to the unrated class
Bankruptcy-Remote A party within a corporate group whose bankruptcy has as little economic impact as possible on other entities within the group (typically a single-purpose company)
Bonded Contractor A bonded contractor has a surety bond, which often goes hand-in-hand with getting licensed or signing up for a building permit
Debt Service Coverage Ratio (DSCR) A ratio that states net operating income as a multiple of current debt obligations due within one year
HUD Loans Loans from the US Department of Housing & Urban Development
Lien A form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation
Master Servicer The party who services the loans through to maturity unless the borrower defaults; the entity who manages the flow of loan payments
Mezzanine Bond A loan that is secured by a property and is senior to any equity
Mortgage-Backed Securities A kind of asset-backed security that is secured by a mortgage or collection of mortgages
Non-Recourse Terms A type of loan secured by collateral, typically property, which can be seized in the case of non-payment, although no further action can be taken if the value of the property does not match the outstanding debt
Rate Lock An unchanging interest rate agreed upon by the lender and borrower during the mortgage process
Subordinate Debt A loan or security that ranks below other loans or securities in regard to claims on assets or earnings
FHA/HUD 221(d)(4) Multifamily Loans
These are FHA-insured loans for multifamily construction or substantial apartment loan rehab projects. The insurance is available to HUD-approved lenders. This loan is fixed-rate, non-recourse, low-cost and high-leverage. The take-out phase fully amortizes over a 40-year term on top of a three-year, interest-only construction phase (total term of 43 years). HUD loans are based solely on the property’s value, without reference to the creditworthiness of the borrower. Underwriters evaluate the property’s location, projected NOI and the developer’s overall track record. HUD 221(d)(4) multifamily loans require a pre-review process by the Department, adherence to wage standards, a bonded contractor and annual audits.
The minimum multifamily loan amount is $2 million, but due to the time and cost to close most HUD 221(d)(4) multifamily loans, most loans start at $15 million. The loan cannot exceed the lesser of:
- Market-Rate Properties: 83.3% LTC or 1.20 DSCR
- Affordable Housing Projects: 85% LTV
- Rental Assistance Properties: 90% LTC or 1.11 DSCR
Up to 10% of gross floor space, or 15% of gross income, can be associated with commercial and retail space. Borrowers must be bankruptcy-remote, single asset entities, and can be either for-profit or non-profit. Mortgage insurance is required. Stabilization must be projected within 18 months upon receipt of the Certificate of Occupancy.
Online Resources for Multifamily Loans
- The Mortgage Bankers Association offers Multifamily Market Research tools.
- Find a curated selection of headlines about commercial lending from National Mortgage News.
- The US Department of Housing & Urban Development provides visitors with resources, press releases, FAQs, and news.
- The US Department of the Treasury has a resource list for Energy Conservation and Green Building Resources.
- The Office of the Comptroller of the Currency also supplies resources and guidance concerning Multifamily rentals.
When you need a multifamily loan for a large apartment building project or large condominium project, turn to Assets America®, a large transaction commercial expert with greater than three decades of experience. We provide second-to-none, personal service with outstanding results! Call us today at (206) 622-3000!