“I’ve heard about it, but it’s not for me.” It’s a common refrain from owners of small multifamily properties when a broker suggests using agency financing like Freddie Mac, according to Joe Back, Vice President of FM Capital, a Florida-based commercial broker.
In Back’s experience, small multifamily property owners shy away from agency loans because they expect a slow, difficult process but this perception may be more myth than reality.
“When I present the terms and explain how straightforward the process is, there is disbelief; but building by building, owners are converting to agency loans,” says Back. He sources small loans for Arbor, the top lender in Freddie Mac Multifamily’s Small Balance Loan program.
Two years ago, Freddie Mac Multifamily launched a business line dedicated to delivering quick, competitive small apartment financing. With $5 billion funded across more than 2,000 borrowers in two years, it is changing the perception of agency financing.
Other factors are also making agency financing more attractive to borrowers. Regulations intended to reduce risk exposure are, in part, limiting the credit availability for commercial real estate from traditional sources. Also, rising rates have led many lenders to pursue yields in other sectors.
Given these developments, what should owners of small multifamily properties expect from agency financing?
Generally, smaller loans from traditional sources are structured with shorter terms and full recourse liability (a personal guaranty to repay the loan). With interest rates headed up, shorter term financing could leave borrowers exposed to higher rates in just a few years.
“Borrowers are now interested in locking in a low interest rate for a longer term,” Back explains. “Freddie Mac’s small loans are a great match for that because they offer fixed-rates up to 10 years.
Combined with a non-recourse structure and stepdown prepayment - instead of yield maintenance - this is a game changer.”
A Quick Process
Freddie Mac’s prior-approval underwriting model allows loans to flow through the process quickly as long as they meet clear credit requirements. Plus, standardized loan documents and closing requirements keep the process timely and cost-effective.
“We see a very high rate of repeat business when it comes to the Freddie Mac Small Balance Loan program,” stated Pat Jackson, CEO of Sabal Capital Partners, an approved wholesale lender of Freddie Mac Small Balance Loans. “We’ve eliminated the surprises that drive people nuts so the process is predictable, consistent and – in many cases – we can close in 30 days or less.”
Technology is adding transparency and organization to the loan process. Sabal’s SNAP platform is one example of this. It connects to Freddie Mac’s systems and allows brokers to enter loan parameters, get real-time pricing and upload documents for quicker underwriting. Similarly, Arbor offers a platform called ALEX (short for Arbor Loan Express) that provides a loan evaluation in three hours or less and helps users stay up to date on the loan process from start to finish.
Commitment to the Market
Freddie Mac’s Small Balance Loan program is part of its mission to support liquidity, stability and affordability in all economic cycles. It works with a network of approved lenders who originate its small loans nationwide.
To explore your small loan options, visit www.freddiemac.com/small-loans.