Freddie Mac Hybrid Small Apartment Loans Give Green Flag to Finance Multifamily Properties
One-thirdrnof all multifamily units are in small multifamily properties which are anrnimportant component of the affordable rental housing stock for low and moderaternincome individuals. Although many small multifamily properties receive somernform of govt. subsidy, unsubsidized units account for three-fourths of unitsrnwith rents below $600.
Multifamilyrnmortgage debt organization and investment is highly fragmented although arnhandful of institutions holds about one-third of outstanding multifamily debt,rnthe remainder is held in portfolio by almost 6,000 Federal Deposit InsurancernCorporation. Although securitization plays an important role in supportingrnmultifamily finance, un-securitized portfolio holdings remain a significantrnsource of multifamily investment. Commercial multifamily mortgagernsecuritization is slowly recovering, and life insurance companies play a measurablernrole as multifamily investors.
How Freddie Mac Hybrid SmallrnApartment Loans Set a Class for Finance?
Albeitrnsmall multifamily properties are commonly defined as those with five to 50rnunits, but Freddie Mac define small multifamily properties by loan size rangingrnfrom $1 million to $5 million. Smaller properties with two to four units arernalso an important source of affordable rental housing, loans for these smallerrnproperties are originated using Freddie Mac hybrid small apartment loans’rnguidelines.
Inrnrecent days, Freddie Mac hybrid small apartment loans have represented arnlimited segment of the total multifamily business activities. Though FreddiernMac is a government sponsored enterprise that provides a secondary financernmarket for residential mortgages, billions of dollars have been providedrnthrough Freddie Mac hybrid small apartment loans for multifamily financing.
Freddie Mac Hybrid Small ApartmentrnLoans in Multifamily Housing Finance
Asrnsecondary market investors, the Freddie Mac hybrid small apartment loansrnprovider’s role in providing liquidity to the multifamily market is anrnimportant one; however, they face a number of challenges in financingrnmultifamily properties. These hurdles are particularly acute for smallrnmultifamily loans.
Therncharacteristics of multifamily properties to qualify for Freddie Mac hybridrnsmall apartment loans are to make financing more challenging. More than half ofrnthe small multifamily housing stock is more than 30years old and tends to havernhigher maintenance costs than larger properties. Although vacancy rates forrnsmaller properties are only marginally higher than those for properties withrnmore than 50 units, losses due to vacancy are higher for smaller properties. Tornmanage these concerns, adequate reserves to cover temporary liquidity problemsrnand meet anticipated capital expenses are even more critical for smallerrnproperties.
Althoughrnindividual borrowers are important contributors in the small multifamily arena,rnthey have unique characteristics that present challenges to financing. In smallrnmultifamily properties with less than 25 units, borrowers tend to be individualrnproperty investors or smaller commercial enterprises that invest in just fewrnproperties. Typically, the ownership structure in small properties with morernthan 25 units involve more formal legal arrangements such as limited liabilityrnpartnerships, limited liability companies, or other types of corporaternentities.
Individualrnmultifamily borrowers operate on thinner cash flow margins that larger propertyrnowners, and are exposed to higher income fluctuation risk when vacancies occur.rnMany individual borrowers don’t have the resources to outsource the managementrnof their properties; instead, they manage their properties themselves which canrnimpact the maintenance of the units or the speed of filling vacancies.
Accessingrnthe entire secondary market data is difficult for individual small multifamilyrnborrowers who often lack the deep pockets to meet secondary market underwritingrnrequirements for minimum net worth, liquidity reserves, or escrowed reservesrnfor capital expenditures. In addition, individual borrowers may not havernaudited financial statements to meet reporting requirements.
Evaluatingrnthese multiple factors before applying for Freddie Mac hybrid small apartmentrnloans not only adds to the complexity and cost of underwriting small-balancernmultifamily loans, but also limits the field of investors willing to purchasernthese loans. Due to a combination of unique factors that are typical of FreddiernMac hybrid small apartment loans, investors view the market as highlyrnheterogeneous. In every loan transaction, all of the distinctiverncharacteristics of both the property and the borrower must be considered. Inrnmany circumstances, these characteristics render a loan to a particularrnborrower, or on a small multifamily property, ineligible for purchase by the governmentrnsponsored enterprises.
Needrnimmediate assistance to qualify for Freddie Mac hybrid small apartment loans?rnGet in touch with qualified loan advisors at ALB Commercial Capital waitingrneagerly to respond to your calls.