Master Money Matrix©
Apartment Finance Edition
1st Quarter 2024
| OPTION | TYPE | EXPLANATION | REQUIREMENTS | USUAL SOURCES | AVAILABILITY | Rates / Spreads | LTV / Coverage | Points | Term (Yrs.) | Amort (Yrs.) | COMMENTS |
| INSURANCE COMPANY LOAN | Debt | Longer term fixed rate loan. | Creditworthy borrower and well-maintained property of "B" or better quality. | Insurance companies, pension funds. | Good | 150-225 over comparable term Treasury | Typically up to 75% 1.25 | Usually limited to a processing fee. | 5-35 | 25-35 | - best pricing for top locations and low leverage - 35 year amortization only available on select properties, must be self-liquidating. |
| AGENCY LOAN | Debt | Longer term fixed rate loan. | Experienced multifamily owner, "A" to "C" quality property. | Fannie Mae DUS and Freddie Mac Optigo lenders | Excellent | 125-250 over comparable Treasury | 80% (75% with cash out) 1.25 | 0-1/2 | 5-30 | 30 | - Competitive underwriting/ pricing for workforce/ affordable housing and "green" properties. - Most competitive rates are for 7-, 10-, and 12-year terms. - Partial to full term interest only offered based on LTV. |
| CMBS LOAN | Debt | Medium term fixed rate loan. | Creditworthy borrower and well-maintained property of "C" or better quality. | Investment banks and specialty lenders. | Limited | 275-400 over SWAPS | Up to 80% 1.25 | 1/2 to 1 | 5-10 | 30 | - Provide full proceeds in secondary/tertiary markets. - Partial to full term interest only offered based on LTV. |
| BANK LOAN | Debt | Fixed/floating; Construction/ permanent | Creditworthy borrower and acceptable collateral. | National, regional, and local banks; credit unions. | Good | Construction: SOFR + 250-350; Permanent: SWAP +175-300 | 75% 1.20-1.25 | 0 to 1 | 2-15 | 25-30 | - Personal recourse often required on stabilized properties over 65% LTV. |
| INTERIM LOAN | Debt | Shorter term loan for acquisition and/or repositioning. | Sound business plan/exit strategy. | Specialized finance companies, banks, some insurance companies and opportunity funds. | Limited | SOFR + 350-500 bps (some w/floors) | At stabilitization: 70% - 75% 1.25-1.30 | 1/2 to 2 | 1 to 3 | Interest only | - Pricing depends on leverage level, property quality, and strength of guarantees (if required). - Usually requires purchase of interest rate cap. |
| FHA 223 (f) | Debt | Fixed rate fully amortizing loan. | Well maintained property. Borrower with clean credit. | MAP Lenders. | Excellent | 160 to 185 over 10-yr. Treasury +60bps MIP for 35 year term. | Up to 85% (80% with cash out) 1.17 | 0.5 to 1.5+ 1% MIP + 0.3% application fee. | 35 | 35 | - Highest proceeds option. - Low rates for 35 year term. - MIP reduced as low as 25 bps for affordable and "green" properties. |
| FHA 221 (d) 4 | Debt | Fixed rate construction + fully amortizing permanent loan. | Economically feasible project. Borrower with some experience and clean credit. | MAP Lenders. | Good | 210 to 240 over 10 yr. Treasury + 65bps MIP for 40 year term. | 85% of cost 1.18 | 1 to 2 + 0.9% MIP + 0.3 % application fee. | 40 | 40 | - Non-recourse fixed-rate construction-perm combination with maximum proceeds. - No affordability requirements. - Davis Bacon wages required. -MIP reduced as low as 25bps for affordable properties. |
| MEZZANINE/ PREFERRED EQUITY | Debt/ Equity | Junior financing secured by pledge of or participation in ownership interest. | Experienced sponsor and good quality property or development. | Specialized finance companies, opportunity funds, and some insurance companies. | Limited | Mezzanine 8% - 14% | Up to 85%-90% of cost, 85% of stabilized value | 1 to 2 | 2 to 10 | Usually interest only | - Preferred equity typically offers higher funding than mezzanine, but at higher cost. |
| JOINT VENTURE | Debt/ Equity | Equity source provides up to 95% + of capital stack, including third party debt. | Experienced sponsor and "A" to "B+" quality property or development. | Investment funds, insurance companies, private capital and REITs. | Limited | Return requirements vary | N/A | 0 to 1 | 3 to 10 | N/A | - J/V financing is mainly aimed at multi-family developers with strong track record. - Overall return is a composite of "debt portion"(50%-65% of cost), and the "equity portion"(all funds above the debt). Higher returns for new construction, lower for properties with cash flow. |
| PRIVATE EQUITY/ SYNDICATION | Equity | Private capital seeking ownership positions in leveraged projects. | Experienced sponsor and project with attractive cash flow and upside. | Individual investors; usually pooled through a fund manager or syndicator. | Adequate | Vary widely | Not Applicable | - Investors are seeking various combinations of tax and economic benefits. - Crowdfunding vehicles are aimed primarily at smaller transactions. |
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| DCR - DUS - | Debt Coverage Ratio Delegated Underwriter Servicer | FHA - IRR - | Federal Housing Administration Internal Rate of Return | LTV-MIP - | Loan to Value Ratio Mortgage Insurance Premium | SOFR-SWAP - | Secured Overnight Financing Rate SOFR Interest Rate Swap | ||||
| The terms shown here in approximate market conditions at the time of publication and are subject to frequent changes based on the shifts within capital markets. The format of this presentation is simplified to aid the reader in a global understanding of the complex financing options available for multi-family properties. Therefore in cannot deal with the numerous intricacies of certain financing options. The edition deals solely with financing of apartments and is an abbreviated version of the Master Money Matrix - Overview. For information on construction loans, second mortgages, etc., the reader is referred to prior issues of the New England Real Estate Journal which contain the most recent editions of the sister “Master Money Matrix - Overview.” | |||||||||||