In September 2008, after Lehman Bros. collapsed and as all hell was breaking loose in the capital markets, Todd Trehubenko received a call from a long-time client.

The client’s property had a large loan coming due in January 2010 and was worried that liquidity wouldn’t be there at the time of maturity. So Trehubenko, president of Boston-based asset-management company CAS Financial Advisory Services, began canvassing the market looking for debt—a search that ended with Freddie Mac.

In 2002, Freddie Mac had bid on a refinancing for the property in question, called the Church Park Apartments, a 508-unit, Class A asset in Boston. Freddie lost that deal to Prudential, but made sure they wouldn’t lose it again. “Freddie Mac is really trying to grow its business through the Capital Markets Execution (CME) program,” Trehubenko says.  “They were able to be more aggressive in pricing, and we were able to achieve greater proceeds because of the lower rate.”

The $130 million cash-out refinancing, a 10-year deal with a 5.5 percent fixed rate, was obtained through CWCapital. The loan had a 1.25x debt service coverage ratio (DSCR) and a loan-to-value (LTV) in the 65 percent to 70 percent range.

Had they gone with Freddie’s portfolio program, the all-in rate would’ve been about 25 to 35 basis points (bps) higher. “On a deal with the kind of NOI we have here, that really made a difference in terms of proceeds,” Trehubenko says.

The Church Park Apartments deal illustrates Freddie Mac’s healthy appetite for large deals—especially through the CME program. Both GSEs are under Congressional mandate to reduce the size of their portfolios. Given that constraint, the CME program, which securitizes loans and sells them to investors, is effectively the future of Freddie Mac’s multifamily business.

Putting on the Ritz
While the Church Park Apartments deal was large, an even bigger deal recently closed through the CME program. The refinancing of the Ritz Plaza Apartments, a 479-unit luxury high-rise in midtown Manhattan, scored a $150.8 million CME loan in late July.

The 5.3 percent deal offered a rate about 30 or 40 bps below Freddie Mac’s portfolio execution. Stonehenge Management was able to pull out about $30 million in equity from the refinancing, which was arranged by Meridian Capital Group and financed by Walker & Dunlop. The loan carries a 10-year term with two years of interest-only, and featured a 66 percent LTV, and a 1.25x DSCR.
While Walker & Dunlop kicked the tires on some Fannie Mae executions, “CME offered the ability to do something with better leverage,” says Drew Anderman, senior vice president multifamily finance at Bethesda, Md.-based Walker & Dunlop. “We felt that for the size of the deal and the fact that it as a massive cash out, it would be better for the client to go with Freddie’s CME.”

Walker & Dunlop struck when the iron was hot in locking the rate. The client was hoping to get a rate below 5.5 percent, but the company had to wait for the yield on the benchmark 10-year Treasury to drop to hit that target. The company locked in the deal on July 10, when the 10-year fell to 3.29 percent: A week before, it was around 3.5 percent, and a week later it was at 3.6 percent.

So, who says that cash-out refinancings are dead? The Church Park Apartments and Ritz Plaza Apartments deals illustrate that strong assets in strong markets can still get great terms, and that increasingly larger deals are being privileged for securitization by Freddie Mac.