Articles

Government Shutdown: What Multifamily Borrowers Need to Know

Unless an 11th-hour agreement is reached, a Congressional impasse will trigger the first partial U.S. government shutdown in four years. Starting October 1, 2023, many non-essential federal government operations will be limited or suspended. Agency lending, however, will not be interrupted, and there is no cause for concern. Borrowers should anticipate some inconveniences, such as processing and closing delays.

Articles

Understanding the Impact of Wildfires on Rental Property Insurance

From California to Maui, the frequency and scope of wildfire events are rising, causing insurance markets and public agencies to reevaluate property in areas at risk for catastrophic damage. As a result, rental housing providers are seeing greater limitations to coverage, higher premium prices, and, in some cases, a total absence of viable private insurance — a trend detailed in the NMHC 2023 State of Multifamily Risk Survey and Report. This troubling new trend has placed many rental housing operators in a bind where they must simultaneously contend with the declining availability and affordability of insurance options.

Articles

Five Advantages of FHA Multifamily Construction Loans

In the last three years, multifamily construction has reached levels not seen since the 1980s, supported, in part, by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) loans. If you are exploring the acquisition, refinancing, rehabilitation, or new construction of conventional multifamily, affordable housing, seniors housing, or a healthcare facility, consider FHA multifamily construction loans, a stable financing option with excellent terms and many other attractive advantages.

Articles

Where are Single-Family Rental (SFR) Rents Rising the Fastest?

While the single-family rental (SFR) sector’s rent growth averages have retreated from record highs, structural tailwinds are keeping price growth positive — both nationally and in major SFR markets. In this research brief, Chandan Economics and Arbor Realty Trust analyze DBRS Morningstar data, which covers the top 20 MSAs by SFR activity, to discover the metropolitan areas where SFR rent growth is the hottest right now.

Articles

Fannie Mae Small Loans Cap Raised to $9 Million

Fannie Mae recently announced that its Small Loan cap has increased from $6 million to $9 million for all loans committed as of August 22, 2023. Multifamily borrowers and lenders have praised the change to the Fannie Mae Small Loans program, which will encourage greater investment in a rapidly growing sector where demand remains high despite market volatility.

Articles

The Top Five Emerging Metros for Retiree Relocation

As Baby Boomers reach retirement age, their evolving geographic preferences are strengthening housing markets and local economies in new locations, which feature attractive climates, relative affordability, and ample outdoor activities. With swelling populations of senior citizens, our top five emerging metropolitan areas for retiree relocation are fertile ground for multifamily real estate investment.

GENERAL: 800.ARBOR.10

Home | Freddie Mac | Value-Add Loan
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FREDDIE MAC®

Value-Add Loan

• Offers short-term, cost-effective financing for modest property upgrades ($10,000 to $25,000 per unit)
• Enhanced to improve property financing for rehabilitation work
• Competitive pricing; lower execution costs
• Interest-only and uncapped floating-rate loan
• Non-recourse and “one-stop shopping” for upgrades and permanent financing

Terms
  • Three years with one 12-month extension based on the borrower’s request and one optional 12-month extension based on Freddie Mac’s discretion
  • Floating-rate loan with full-term interest-only; no cap required
  • Standard 12-month lock-out with option for longer or shorter lock out based on borrower’s preference; borrower may pay off the loan at any time after the expiration of the lock-out period but must remit an exit fee of 1%; the exit fee will be waived if the loan is refinanced with Freddie Mac
  • Acquisitions and refinances; not assumable
  • Loan documentation at origination will include the Value-Add Rider, which will detail the terms/requirements of the rehabilitation
  • Escrows will include real estate taxes, insurance, and replacement reserves
  • 15% cash equity generally required
  • For longer-term ownership, cash-out is available provided a Completion Guaranty on budgeted improvements in an amount at least equal to the cash-out in place
Upfront Fee Standard 0.5% of loan amount nonrefundable upfront fee subject to adjustment depending on loan terms
Eligible Borrowers
  • Developers/operators with experience in multifamily property rehabilitation and in the local market with sufficient financial capacity
  • 1.5x the standard minimum net worth and liquidity requirements for guarantors
Eligible Property Types
  • Properties with no more than 500 total units in good locations
  • Well-constructed properties requiring modest repairs
  • Market laggards that require capital infusion and new/improved management
  • Real-estate owned properties in receivership that are capable of improved performance
  • Seniors housing, student housing and manufactured housing communities are not eligible
Amount
  • Maximum loan-to-purchase / loan-to-value (LTV) ratio: 85%
  • Minimum amortizing debt service coverage ratio (DSCR): 1.10x – 1.15x depending on market
  • Sizing based on a 7-year sizing note rate
  • Appraisal must include as-is and as-stabilized values; underwriting must support a 1.30x DSCR and 75% LTV based on as-stabilized value supported by the appraisal
  • Standard Freddie Mac underwriting based on as-is income and expense
  • Refinance Test not required
  • No pro-forma underwriting of future performance
Rehabilitation
  • Rehabilitation must commence within 90 days of loan origination and be completed within 33 months
  • Acceptable budget of $10,000 per unit to $25,000 per unit
  • Budget can be adjusted by as much as 20% without additional approval; 50% of the budget should be spent on unit interiors
  • Completion Guaranty or rehabilitation escrow required
  • Borrower/Servicer reporting required
At Loan Maturity/Refinance
  • Final engineer review of work completion and quality is required
  • Refinance with Freddie Mac with no exit fee; otherwise 1% applies
  • Freddie Mac will re-underwrite the loan according to then-current credit policy parameters
  • One-year borrower extension option is available for a 0.5% extension fee, assuming no event of default
  • Additional Freddie Mac extension option is available thereafter with a 1% extension fee
Fees Standard fees apply, including application fee and good faith deposit.

V020623

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