Apartment Buildings

We have many programs available for multi-family properties / apartment buildings. Most of the lenders we work with are looking for opportunities to expand their apartment building portfolios. Part of the reason for this is many low income apartment buildings offer CRA credit to traditional banks, which helps them meet their requirements with the Federal Government. Below is a breakdown of the programs available:

a) Fannie Mae – This program is great for procuring long-term fixed interest rate financing for buildings Borrowers plan to hold. Through Fannie Mae we can finance the acquisition of or refinance of existing apartment buildings five-units and up with loan amounts starting at $750,000. There are five, seven, and ten year fixed interest rate options. Five-year rates start in the 4% range with Seven and Ten year rates in the 5% range. The standard amortization is thirty-years. We can finance up to 80% of acquisition cost (and in some cases as much as 85%), and on a refinance up to 80% without cash-out and 75% with cash-out. However, the advance rates also vary depending on the location of the property as Fannie Mae has restrictions in certain States on the loan to value (example: Florida they will not finance more than 65% loan to value). Occupancy has to have been 90% or higher for the past six months, and historical cash-flow has to justify the loan amount. This program does have prepayment penalties due to the long-term fixed rate nature of the financing, so it is not good for Borrowers looking for short-term money.

b) Freddie Mac – The standard program is very similar to Fannie Mae. However, they are running a special program for loan amounts over $5 million. It is an interest only program on a five-year balloon loan. The loan to value cannot exceed 75% of value no cash-out and 70% of value with cash-out. The interest rate starts at Libor plus 2.50% (which today is 2.75%), and the rate has a ceiling at 6%, meaning the rate can never exceed 6%. The term is five years.  This is the best program in the market for larger apartment buildings because the interest rate is so low. Payments are roughly half of what they would be under a standard five-year amortizing fixed rate mortgage with Fannie Mae or Freddie Mac.

c) National Lenders – We work with a number of National Lenders that are looking to fund apartment buildings really anywhere in the Country. Loan sizes must be a minimum of $2 million. Interest rates are in the mid 5% range on a five-year fixed and the mid 6% range on a seven and ten year fixed. Loan to values are typically 75% on a refinance and 80% on acquisition. For cash-out, it varies depending on the transaction, and cash-out is not available on all requests. Amortizations are typically twenty-five to thirty years. This program is good for Borrowers that either cannot get a property to qualify under a Fannie Mae or Freddie Mac program, or who don’t want the penalties associated with the Fannie Mae or Freddie Mac program. These loans still typically have prepayment penalties, but they are not as steep as those offered by Freddie Mac and Fannie Mae.

d) Traditional Banks – We have many traditional both Community and Regional Banks looking to fund apartment buildings. Interest rates vary quite a bit depending on the institution, but interest rates are as low as 4.75% on a three-year fixed and 4.99% on a five-year fixed, all the way up to the mid 6% range depending on the quality of the property, Borrower, and which lending institution is making the loan. Interest rates can even go higher than the 6% range for higher risk properties and Borrowers. Amortizations are typically twenty-five years, although in some cases they can be less or even longer. For Borrowers that don’t have loan amounts that hit those required by Fannie Mae, Freddie Mac, or National Lenders, or are not sure how long they plan to hold the properties, local Banks are the best way to go. Also, local banks offer more flexibility and more of a relationship for the Borrower.

e) Private Lenders – We have many private lenders willing to finance multi-family / apartment buildings. These lenders are conservative and are looking for performing properties. Interest rates are quite a bit higher than traditional bank rates, currently between 8% and 16%. Also, advance rates are typically conservative and will not exceed 70% of the lesser of value or cost. In some cases cash-out refinances are allowed, but typically when that occurs the loan to value is quite a bit below 65% and the Borrower has to have a good use for the money. Terms vary widely depending on the program from one-year to five-years, and some loans are interest only while others will be amortizing sometimes over as much as thirty-years.

f) Hard Money Lenders – We have hard money lenders looking to put high risk capital in place on transitional properties. Often times these are storied properties where the Borrower needs capital for a short-period of time to allow for a stabilization of the property or for some work to be completed. In addition, these lenders are often willing to fund note purchases as well as straight mortgage debt. These lenders won’t typically fund more than 65% of total cost, without regard to existing or end value, and are typically providing that funding on a short-term one to two year basis. However, additional funding can often times be available if there is outside collateral to pledge. In almost all cases the loans are interest only with interest rates between 12% and 18%, and high loan fees between 2% and 6%. All of the lenders we work with underwrite each property looking at the end game and the ability of the Borrower to refinance that property into more traditional financing upon maturity of the Hard Money loan. We do not work with lenders that are underwriting these loans on the front-end with hopes of taking the properties back. We typically will not recommend a loan for Hard Money unless we are confident a plan is in place where we can secure the replacement financing once the property is stabilized or repositioned.