Commercial Loans and Fun Blog

The conduits are making are making CMBS loans again, and the most preferred product is multifamily loans.  The problem is that the agencies - Fannie Mae and Freddie Mac - have better rates and terms for apartment loans than the conduits.  The agencies will also go higher in terms of loan-to-value.

The conduits are therefore looking for scratch and dent apartment loans that don't quite qualify for the agencies.  One reason an apartment building might not qualify is that it cannot satisfy the 90/90 Rule.  Fannie and Freddie will not finance an apartment building that has not been at least 90% occupied for ninety days.

Another fatal flaw for Fannie and Freddie is tuck-under parking.  Tuck-under parking is basically carports underneath the building.  The concern is that the building could collapse in an earthquake. 

Image of tuck-under parking

Although the agencies won't finance properties with tuck-under parking, CMBS lenders will gladly make these loans.  If your apartment building is also struggling to maintain 90% occupancy, you should consider a conduit loan.

Do you need a conduit loan right now?  You can apply to several dozen conduit lenders in just four minutes using C-Loans.com.  And C-Loans is free!

You can also write to me, George Blackburne, at george@blackburne.com.  Simply insert the words, Conduit Apartment Loan Request, in the subject line of your email.

Man, oh man, do we ever have a great new apartment loan program for you!  There is a little-known institutional investor out there that has an almost insatiable appetite for apartment loans.  Last year they originated and/or purchased over $380 million in apartment permanent loans, making them one of the largest players in the multifamily financing market.

Because we have been in the commercial mortgage loan business for over 33 years, and because we own CommercialMortgage.com, Blackburne & Sons just got approved to originate and sell apartment loans to this investor.  These apartment loans actually close in our name, but they are quickly sold off to our institutional investor.  The vetting process took over six months to complete, but we are now one of only six mortgage banking firms in the entire country allowed to originate loans for this investor in our own name.

Okay, here's the deal.  These are all 30-year fully-amortized loans.  Your client has a choice of an ARM tied to 6-month LIBOR, a three-year hybrid, a five-year hybrid, a seven-year hybrid, or a ten-year hybrid.  By far the most popular choice is the five-year hybrid.

The interest rate is incredibly low, starting as low as 3.87% for a purchase money, 5-year hybrid in a Tier I market.  Properties in less-populated and/or less-desirable areas - known as Tier II and Tier III markets - have slightly higher interest rates.

The ARM program and the hybrid programs, after the initial fixed rate period, are tied to six-month LIBOR, with a 3.5% interest rate floor, a ceiling of 6% over the start rate.  On the hybrid loans, there is no periodic rate increase cap on the initial rate readjustment, immediately after the fixed rate period.  After the first rate readjustment, there is a 1% rate readjustment cap every six months.  This loan has no negative amortization.

This program can be used for apartment loans as small as $300,000 to as large as $20 million.  Apartment loans smaller than $1.5 million have slightly higher interest rates, but the interest rate is still very, very attractive. 

The loan-to-value ratio is between 75% and 60%, depending on the property's quality, age, and location, and whether the loan is a purchase-money loan, a rate-and-term refinance, or a cash-out refinance.  Your Blackburne & Sons loan officer can work with you to quickly make this determination.

In addition to apartments, this program can aslo be used for 4-star and 5-star mobile home parks (no single-wide coaches), mixed use properties (maximum of 40% commercial), student housing, and, surprisingly, low-income housing.  Caution:  Low-income housing deals are valued based on the lower rents typically found in nearby middle-income areas, so the maximum loan amount is often lower than expected.

Personal guarantees are required from Managing Members, General Partners, coporate officers, and individuals owning 20% or more of the property.

Loans to foreign nationals are available, up to 50% loan-to-value. 

We recommend that you quote your borrower the following:

Interest rate: 5.10%  (Assumes an average building in a Tier II market)

Loan Fee: 1 point  (Brokers add their fee on top)

Amortization / Term: 30/30

Prepayment Penalty: 5,4,3,2,1

Please gather for your Blackburne & Sons loan officer:

1. Color photo's of the property
2. Rent Roll
3. Last two years' actual income and expenses.
4. Financial statement on the borrower.