What are typical terms for permanent financing of medium to larger multi family?

[Frederick Rauh]

Hi all. 

I am working on the feasibility of a joint venture multifamily development. I would like to re-finance into long term debt once the project is finished using a DSCR type loan. Is it possible to get fixed rate debt for 5<20 unit properties?

1.) What would rates look like relative to single family/small multifamily? 

2.) What are typical term lengths? Can they be 30 years, or is 10-15 years more typical?

3.)How proven will the property need to be before refinancing into this type of debt? I am assuming it would need to be completely finished with 50-80% occupancy. 

Any advice would be appreciated. I like the idea of the fixed long term debt from a risk perspective, but I’m not sure if this is typical of commercial development projects. 

[Chris Mason]

Hey Frederick,

I invented a 20-unit property and ran it through our database really quick. You paid $2m for it two years ago w/ 25% down (it was suffering from mismanagement and deferred maintenance), invested $325k in capital improvements, and it's now valued at $3m with an NOI of $195k (cap rate assuming $3m value is 6.5%). You purchased it with a HML, and are now rate/term refinancing the $1.5m (75% of $2m) hard money loan for better terms b/c you show six months of stabilized rent, the T-12 and rent roll with the monthly breakdown shows a clear trend towards where we are at now.

Your hard money loan matures at the 2-year mark, but you weren't silly enough to call me at the 1 year and 11 month mark, so my partner lenders that have great terms, but move slower, are on the table. You called me 4 months ahead of when that hard money loan matures b/c you are smart and realize that time is money.

For the 2nd option, it lists "7/25, 10 year maturity." That means the rate will be fixed for 7 years, the payments will be calculated on a 25 year amortization, and there's a balloon payment at the 10 year mark. 

From left to right:

- Points are 1.5%, 1.25%, and 1.25%

- Prepayment penalties are in place for 7 years, 2 years, and 3 years. I can search for "none," but didn't for this example. 

- I didn't search for non-recourse, that just popped up by dumb luck. 

- The 3rd lender, on the right, with the best rate, requires that one borrower/sponsor be experienced in the asset class, and that they personally live local to the property. 

- 1 regional lender (Pima + 1 other county), 1 state-wide lender (AZ), and 1 national lender, not in that order, is represented here.