Texas 7% Cap Rate Apt Building Refi Terms Review & Survey - May 2024

[Chris Mason]

These are all best execution for a well qualified sponsor. The below terms are live as of this date, for a rate and term refi (no cash out).

From left to right:

Points: 1, 1.25, 2.

Prepayment penalty: 10 years, 3 years, 5 years.

Commentary/review, hopefully this thought process is useful when evaluating offered terms for a maturing commercial mortgage that needs to be refinanced. 

Agency - as expected, always the best rate and lowest fees. The prepayment penalty could be painful if rates drop within the next decade. Most people will not qualify for this, Fannie multifamily is simply not an option for someone new to this asset class.

Bank - This is a Texas headquartered bank. 25 year amortization isn't the sexiest, but that's a human-attainable interest rate with very modest points/fees, with a short prepayment penalty. This particular bank will not support absentee (eg, lives in California or New York) borrowers, and requires a relationship. Texans only, so they're picky about the borrower. I love that the rate is fixed for 10 years, but the PPP is only 3 - best of both worlds, if you are that Texan: if rates go up, you're protected for a decade, but if rates go down you can refi penalty-free after only 3 years.

Credit Union - This is a Washington State credit union, coming in strong with that 30 year amortization producing a lower payment. They will be snobby about the neighborhood and wouldn't do the loan if it wasn't a nice area, and only on 1950 or newer properties, but you don't have to be a Texan to get this loan on a Texas apartment building, so they're picky about the property. Credit unions usually come in good with no or short prepayment penalties, but not in this case.