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Agency is a broad market for multifamily capital. It deserves a lot of attention and an incredibly deep understanding of the space in order to be navigated effectively. There are a multitude of products between Fannie Mae and Freddie Mac; from DUS, to conventional, to SBL and back. Each program has its own strengths and weaknesses and although many stabilized multifamily deals may fit in both buckets, sometimes one is far better than the other for pricing, execution, leverage, a little i/o, or all of the above. It is important to work with a shop that understands the nuances of agency debt to help borrowers achieve tighter margins and improved execution. Our focus is bringing institutional leverage, pricing, and execution to small and middle market multifamily investors with a hyper focus on loans between $750k and $7MM. Our capabilities allow for loans up to $100MM or more, but we believe we add the deepest value to the small balance industry by educating and executing. Although we pride ourselves on our ability to close large and complex capital markets transactions; the core of our business is empowering the risk-managed growth of our first-time agency borrowers.
Some of the most competitively priced financial instruments with the most aggressive terms in the industry are FHA-insured multifamily loans. With leverage on both permanent and construction debt up to 85% LTC for market-rate products (and higher for affordable, LIHTC, RAD, etc.), non-recourse terms for up to 35 years for existing assets and 40+ years for permanent construction loans (not to be confused with construction-to-perm), terms and leverage are always superior to "market." Rates, including MIP (mortgage insurance premium), are generally lower than all other loan products, besides perhaps some life company debt, because of the government guaranteed default insurance on the loans. For inexperienced borrowers, lenders, and intermediaries, arranging FHA debt can be a daunting path to navigate due to its inherent complexities, but we pride ourselves on our FHA multifamily strength and as such are a market-leader. From $1MM to $100MM+ HUD®-insured multifamily loans lead the industry in terms but require the right team for execution quality to match product strengths.
Not all CMBS loans are created equal, and neither are the lenders. We are highly focused on small CMBS debt between $2MM and $7MM where fees run high, and we have the ability to manage the costs and process more efficiently than the nation’s biggest banks and CMBS lenders. When it comes time to negotiate an assumption, to pick the right legal counsel or get the tightest spread, relationships and product-education matters deeply. Some CMBS lenders favor one product one month and the next month are pricing that same asset-class wider than everyone else. A finger on the pulse of the market is required to know, for example, where you can capture the most i/o and lightest third-party costs while still achieving maximum execution. How many CMBS lenders does your broker work with?
Although bank debt is often considered the debt of last-choice to some of the more institutionalized or experienced borrowers (because of shorter terms, amortizations and recourse provisions) they are still the go-to for other shops (both big and small alike) for lots of reasons. The reality is that they quite often offer the lowest cost-of-closing and (with some level of recourse for loans under $10–$20MM) sometimes the lowest rates (relative to leverage). They also have a very important feature that lenders who scrutinize their debt don't have — the ability to reduce or even eliminate prepayment penalties. Bank and Credit Union debt can be wonderful for transitional and bridge opportunities as well. The reality though is that there are thousands of banks and credit unions making commercial mortgages, how do you choose the right one? You have to have the right commercial mortgage brokerage with the right relationships.
Construction is a field that requires an understanding of the entire geographical market as well as specialized know-how for construction of individual asset classes. Arranging construction debt becomes far more granular as sub-markets have their own occupancy trends, cap rates, absorption rates, concessions, and much more. Financial modeling for construction loans become even more nuanced when calculating IRRs based on various exits, stress-testing permanent debt, and creating an efficient capital stack. Everyone from FHA to life companies to banks play in the construction space in one capacity or another and when it comes to arranging construction debt the diversity of relationships is as important as the depth of them and the experience of the advisor running lead on the transaction.
SBA 7(a) and 504 lenders leverage the Small Business Administration’s loan guarantee program to provide owner-occupied business loans at higher leverage than almost any other category of lender. You can expect to get up to 90% of your purchase price and then finance things like working capital or new machinery. SBA financing is sometimes a perfect fit and sometimes too covered in red tape, expenses, and recourse to make sense, but the only way to understand if their leverage and costs make sense for you relative to the rest of the market is to work with a team that understands the entirety of the SBA loan portfolio of offerings and the alternatives.
Small loans are generally considered $1MM–$7MM and that is fairly easily addressable with agency, CMBS and bank money, but the market for loans under $1MM is atrophied and real estate investors, developers and entrepreneurs often have an incredibly difficult time procuring competitive financing. There actually happens to be a very large addressable market out there for small loans as well as loans for borrowers that may not fall “down the fairway” as far as credit, income and other factors are concerned. We have spent a lot of time building a bucket just for those kinds of loans and now have a team in place dedicated to servicing this community of borrowers exclusively.
LP & Co-GP
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