Fannie Mae and Freddie Mac Continue to Dominate Apartment Lending
Agency lenders are making more permanent loans than ever on apartment properties.
Freddie Mac and Fannie Mae lenders are providing the overwhelming majority of permanent loans to apartment properties.
“Fannie Mae and Freddie Mac are probably still the premiere lenders for leveraged apartment buyers,” says Mark Isaacson, co-founder of Redwood Capital Group, a real estate investment management firm focused on the multifamily sector. “Both are very competitive right now.”
Agency lenders are making more permanent loans than ever on apartment properties. Borrowers chose loans from agency lending programs for nearly two-thirds of the permanent financings completed in 2017 despite limits set by federal regulators (loans to certain kinds of apartment properties, including affordable housing, are not limited by the caps).
Fannie Mae and Freddie Mac financings accounted for 60 percent of the permanent loans on apartment properties in 2017. That’s up from close to half (52 percent) in 2015. It’s also not far from the 69 percent share of permanent financing that agency lenders provided in the years after the financial crisis, according to Real Capital Analytics (RCA), a New York City-based research firm.
It’s surprising that Fannie Mae and Freddie Mac have done so many deals. They are restricted by the officials at the Federal Housing Finance Agency who set strict caps on the volume of permanent financing they can provide for conventional apartment properties. However, loans for certain kinds of properties are not limited by these caps, including affordable housing, seniors housing and student housing.
In 2017, Freddie Mac financed a record-setting $73.2 billion in loan purchases and guarantees for properties totaling more than 820,000 apartments. That’s an increase of nearly 30 percent from $56.8 billion in 2016.
Of Freddie Mac’s total volume, $39.4 billion was uncapped. Of the eligible apartments financed by Freddie Mac, 83 percent were considered affordable to low- and moderate-income families making no more than 100 percent of the area median income.
Fannie Mae lenders are not far behind. Over the 12 months that ended in March, Fannie Mae financed $67.1 billion in permanent loans on apartment properties. Fannie Mae lenders are offering slightly more generous terms to borrowers, perhaps in an effort in do more business, according to Isaacson.
“This increase in agency market share did not come at the expense of loosening standards,” according RCA. Permanent loans for apartment properties provided by agency programs averaged $14.8 million in size in 2017 and covered 68.6 percent of the value of the property, according to RCA. That’s slightly less than the average loan-to-value ratios of agency loans made in 2016.
The agencies are quoting spreads in the 145 to 200 range over the comparable Treasuries depending on the loan size, quality, LTV ratio, debt coverage and other factors. The fixed interest rates on these loans range from 4.0 percent on the low side to 5.10 percent, according to Ben Kadish, president of Maverick Commercial Mortgage, a commercial mortgage banking firm based in Chicago.
The interest rates offered by agency lenders are typically 25 to 50 basis points better than those offered by the CMBS lenders, but are comparable to the interest rates offered by life insurers for the most part. The banks do not offer the same length of loan terms as the agencies, but are competitive with them on five-year fixed rate loans, says Kadish.
Source: National Real Estate Investor – Bendix Anderson Apr 17, 2018