Commercial Mortgage Services

Lender Sources & Options

Banks

If you are looking to finance your apartment building or commercial real estate with your local bank, you may be under the impression there is no reason to use an intermediary.

This is not the case. Banks have their own niches. There are profound differences between community banks, credit unions, regional banks, and national institutions. Some banks offer fully amortizing 30-year loans, others have amortizations that are limited to 20 or 25 years. Some lenders may cap/limit leverage at 70% LTV whereas others will allow up to 80% LTV on some multi-family properties. Maybe you prefer a shorter prepayment period because you typically refinance or sell/1031 exchange every 2-3 years.

For the above reasons and more, you will likely benefit from working with a mortgage/financing intermediary (like Realty Yield) that has a long list of banking relationships and options.  We can shop your loan for the best rate/terms for your situation and needs.  

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Example Bank Terms for Apartment & Commercial Property

Size:  $1million to more than $50 million
Term:  Up to 30 years
Interest Rates:  Fixed rates vary, floating rates based on margin over LIBOR
Amortization:  Up to 30 years
Maximum LTV:  75-80%
Minimum DSCR: From 1.20x
Interest-Only Period:  Partial-term and full-term

Advantages

  • Will do smaller loan amounts
  • Can finance troubled assets for borrowers with strong supporting financials
  • Faster close than agency
  • Flexible/Negotiable prepayment options/terms

Disadvantages

  • Occasionally more rigid down payment and loan limit based on net worth of borrower
  • Often (not always) requires some sort of recourse for borrower
  • Often shorter amortizations and shorter fixed periods than CMBS and agency loans
  • Can be stricter with cash out refinances (not always, varies by lender)

Apartment / Multifamily Loans Under $1M

One of the most underserved areas - and one in which securing loans is a challenge- are apartment/commercial real estate loans from $500,000 to $1 million.

This is because it costs a lender about the same amount of money to originate a $500,000 loan as a $10M loan. Also, since most apartment/commercial loan originators are incentivized by dollar volume there is less motivation to pursue loans under $1 million, as it may double, triple, or quadruple their workload.  Realty Yield has access to the best lending sources for this high demand, underserved financial/mortgage niche.  

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Loan Sizes $250,000 – $1Million (Typical Program Highlights):

Size:  $250,000- $1million
Term:  3, 5, 7 10, up to 30 years
Interest Rates:  Fixed rates vary, floating rates based on margin over LIBOR
Amortization:  Up to 30 years
Maximum LTV:  Up to 80%
Minimum DSCR: From 1.20x
Interest-Only Period:  Partial-term and full-term

Key Points

  • Credit scores from 600+
  • Non-recourse option for multifamily loans over $750K
  • Low-documentation programs available
  • Fast closings, 35 to 45 days

Life / Insurance Companies

For apartment properties, Life Companies offer an alternative to Fannie Mae and Freddie Mac financing, as they have longer loan term options and typically exceptional rates.

However, Life Companies are less competitive when it comes to leverage (LTV), especially when it comes to cash-out refinancing. Life Companies are often the most competitive and viable option for larger balance ($10MM and up) commercial real estate loans for office buildings, retail centers, single tenant retail and other commercial properties. Life Companies do generally focus on the highest class/quality assets, hence they are very selective when it comes to approving financing/mortgages.

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Example Life Company Terms for Commercial Real Estate Loans

Size:  $2million and up
Term:  10 to 35-year loan terms (self-amortizing options available)
Interest Rates:  Fixed rates vary
Amortization:  Up to 30 years
Maximum LTV:  75% (although often-times capped at 65%)
Minimum DSCR: From 1.25x+
Interest-Only Period:  Interest only period available for certain properties

Advantages

  • Will consider loan modifications or special requests (i.e.secondary financing) during the loan term
  • Early rate lock (up to 90 days prior to closing)
  • Non-recourse option

Disadvantages

  • Typically, lower LTV limit
  • Usually restricted to higher class assets
  • Less likely to do cash-out deals

CMBS

CMBS loans, also known as conduit loans, are non-recourse and offer low interest rates and relatively high leverage, with LTVs going upto 75% for eligible properties. (CMBS stands for “commercial mortgage backed security,” as these loans are pooled into securities and sold on the secondary market to investors). CMBS financing is often ideal for projects that are not a good fit for agency lenders like Fannie Mae or Freddie Mac.

Since CMBS is primarily asset based, lenders are more likely to approve borrowers with credit or legal issues, such as a recent bankruptcy. These loans are also ideal for situations that require a faster closing process, with less red tape and more focus on the property income than the borrower.  CMBS loans are available for properties in most commercial real estate asset classes, including office buildings, retail centers, apartment buildings, hotels, industrial properties, and more.  CMBS Loans Can Offer Significant Advantages and Benefits for some Multifamily Investors.

NOTE: CMBS borrowers should understand that, unlike bank loans, you will not be dealing directly with your lender after your loan has been securitized and sold to investors. Instead, you will work with a master servicer, a company which specifically works to administer (collecting payments, property inspections, etc.) conduit loans.

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Example CMBS Terms for Apartment & Commercial Property Loans

Size:  Typically,$2 million, and up
Term:  5, 7, and 10 year fixed
Interest Rates:  Typically based on a margin (~200bps) over the swap rate
Amortization:  25 to 30 years
Maximum LTV:  Up to 75%
Minimum DSCR: From 1.25x+

Advantages

  • Non-recourse
  • Attractive fixed rates
  • Up to 75% LTV
  • Will consider non-Class “A” assets
  • Less scrutiny for borrowers
  • Provides cash-out refinancing
  • Loans are fully assumable
  • Can be combined with mezzanine debt or preferred equity in many scenarios

Disadvantages

  • Limited flexibility to deviate from the terms of the loan documents
  • Difficulty in releasing collateral
  • Can be expensive to exit (prepayment penalty, defeasance, or yield maintenance)
  • Lock outs often prevent prepayment for 2+ years
  • Reserves required

Fannie Mae

When it comes to financing multi-family properties, apartments, student housing, affordable housing, assisted living, healthcare facilities, mobile home parks and more, Fannie Mae often offers the most competitive fixed rate and floating rate financing, (with the possible exception of Freddie Mac).

However, qualifying can be a challenge, as Fannie Mae loans require very experienced borrowers with strong financial statements and rigorous property underwriting. Fannie Mae multifamily loans are particularly well suited for affordable housing financing and can fund affordable housing rehabilitation— especially when paired with the LIHTC (Low-Income Housing Tax Credit) program. Fannie Mae financing is also a good choice for financing properties previously under HUD legacy programs that are being converted to Section 8 housing under the Rental Assistance Demonstration (RAD) program.

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Example Fannie Mae Terms for Apartment Loans

Size:  Typically, $1 million to $100 million
Term:  5, 7, 10, and 12-year terms
Interest Rates:  Fixed rates vary
Amortization:  30 years
Maximum LTV:  75% ~ 80%
Minimum DSCR: 1.25x

Advantages

  • Highly competitive pricing
  • Early rate lock option
  • Up to 80% LTV
  • Non-recourse
  • Various prepayment options/terms available

Disadvantages

  • Selective of the properties they will finance
  • Require financially strong and experienced borrowers

Freddie Mac

Freddie Mac provides a diverse portfolio of multifamily loan products for both the acquisitions and recapitalizations of apartment communities.

In the past, Fannie Mae was the government sponsored agency of choice for higher balance multifamily lending.  However, in a bid to become more aggressive in the lending market due to increased competition, Freddie Mac released a small balance program in September 2014 to compete with Fannie Mae. Like Fannie Mae, it has strict underwriting guidelines for principals and properties. But once approved, there are very few multifamily lenders that can compete, outside of life companies on larger balance deals. 

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Example Freddie Mac Terms for Apartment Loans

Size:  Typically, $1 million, and up
Term:  Fixed and floating rate options with 3, 5, 7 and 10-year terms
Interest Rates:  Vary
Amortization:  Up to 30 years
Maximum LTV:  Up to 80%
Minimum DSCR: 1.25x

Advantages

  • Highly competitive pricing
  • Early rate lock option
  • Up to 80% LTV
  • Partial-term and full-term interest-only available
  • Non-recourse option
  • Loans are fully assumable

Disadvantages

  • Selective of the properties they will finance
  • Require financially strong and experienced borrowers
  • Can be expensive to exit (prepayment penalty, defeasance, or yield maintenance)

HUD-Insured Multifamily Loans

When it comes to building, acquiring, or refinancing multifamily properties, the U.S. Department of Housing and Urban Development (HUD) offers some of the best financing options on the market today.

HUD-insured multifamily loans offer competitive interest rates, long terms, high leverage allowances, and are fully amortizing and non-recourse. In addition, HUD multifamily loans are fully assumable (with HUD/FHA approval).  While HUD loans are excellent for all kinds of properties, including market-rate apartment buildings, they offer additional benefits for affordable properties, and are a great candidate for Low-Income Housing Tax Credits (LIHTCs), housing located within Opportunity Zones and in conjunction with the Rental Assistance Demonstration (RAD) program, which allows certain properties under HUD legacy programs for affordable properties to convert their housing to the HUD Section 8 program. However, despite their benefits, HUD multifamily loans do require a significant amount of paperwork and documentation-- which is why it's essential to have a trusted advisory team that can guide you through each step of the HUD multifamily application, approval, and closing process. 

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HUD Loan Types

HUD 223(f) Loans for the Acquisition and Refinancing of Multifamily Properties
The HUD 223(f) loan is a highly effective option for borrowers who want to acquire or refinance multifamily properties. HUD 223(f)loans begin at $1 million (though exceptions are sometimes made) and have no maximum loan amount. These loans typically have a 35-year fixed-rate term, though the term can be as short as 10 years, as-long-as the loan remains fully amortizing. Like HUD 221(d)(4) loans, HUD 223(f) properties with a certain number of affordable or low-income housing units may quality for low income housing tax credits (LIHTCs).

HUD 221(d)(4) Loans for New Construction and Substantial Rehabilitation 
The HUD 221(d)(4) loan is perhaps the industry's best and most affordable loan option for developers who want to build or substantially rehabilitate a multifamily property. These loans begin at $4 million and can go up to $100million or more, and are available for market-rate, affordable, and rental-assistance developments. Plus, HUD 221(d)(4) loans have 40-year fixed-rate terms, plus a 3-year interest-only construction period. For properties with a significant amount of affordable housing units, developers may be able to take advantage of low-income housing tax credits (LIHTCs). In addition, these loan scan take advantage of a builder sponsor profit and risk allowance (BSPRA), which allows the general contractor to take a small amount of equity in the project, which can significantly reduce the amount of cash needed at closing. 

Hard Money

Hard money loans and private capital for hard money situations were a rarity in the past. However, as markets evolve and capital ebbs and flows, situations might arise that now require hard money.

The benefit to true hard money loans on commercial real estate is that the only underwritten component is the as-is value of the property. This means fast closings and high costs. In the past, borrowers have used hard money because of credit, legal, or financial issues. Hard money financing in commercial real estate is also used when a borrower needs a particularly fast closing because of a deadline, or because financing fell through on a property under contract. In general, hard money is still used every day and for a variety of reasons. That said, hard money may not be your only option, and before applying for a hard money loan, you should know if you have any alternatives available. Please contact Realty Yield for more information.

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Example Hard Money Loan Terms for Multifamily and Commercial Property

Size:  $500,000 and up
Term:  Typically, 6 months to 3 years (extension options available)
Interest Rates:  Typically,12%+
Origination Fee:  Typically, 3.00% - 5.00%
Amortization:  Interest only (deferred payments occasionally available)
Maximum LTV:  Typically limited to 65% of as-is value

Advantages

  • Loan amount determined by property value
  • Fast closing process
  • Limited borrower qualifications required

Disadvantages

  • The highest rates
  • The highest closing costs
  • Short period with balloon payment
  • Risk of losing property for a small loan amount
  • Full recourse

Bridge Loans

Non-Recourse Multifamily and Commercial Property Bridge loan rates and terms vary subject to sponsorship, loan amount, property type, leverage, and the story behind the need for the bridge financing.

Some common uses of bridge loans are construction completion, stabilization, and rehabilitation.  Bridge loans are ideal for repositioning a property to get competitive permanent financing or sell the asset after the project is managed to stabilization or the "issues" at hand are addressed. Multifamily bridge loans can be taken out with Fannie and Freddie loans, CMBS financing or other bank loans. Most of the same opportunities exist with commercial real estate bridge loans in general outside of Fannie Mae and Freddie Mac permanent financing options.

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Example Bridge Loan Terms for Multifamily and Commercial Property

Size: $1Million and up
Term: Typically,6 months to 2 years (extension options available)
Interest Rates: Vary
Origination Fee: Typically, interest-only
Maximum LTV: Typically, up to 75% of cost (LTC) capped at 70% of the completed or stabilized value.

Advantages

  • Loan amounts are determined by total project cost or completed value and not necessarily on income in-place or the as-is value, although in-place income can help secure better rates/terms.
  • Fast closing process
  • Capital often available when other portions of the credit market are locked up

Disadvantages

  • Loans are short-term and generally need to be replaced inside 24 months

Private / Individuals

Some firms offer loans that are funded by private individuals (or a group of private individuals), instead of from a company’s assets. Private lenders are often willing to receive loans with higher levels of risk in return for a higher return rate on the investment.

Please contact Realty Yield to discuss options and funds availability.

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Other Mortgage Banker / Broker Intermediaries

Please contact Realty Yield to discuss options and funds availability.

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