All Forum Posts by: Dushyant Ravi

I am assuming payroll is being lumped into R&M. I usually see that broken out at least in the bigger properties I finance as a banker. There is also G&A, advertising expenses. 

Despite me being a direct lender and a banker, I would recommend a broker at these loan amounts as options are typically local banks based in the area where the property is located or private lenders & debt funds that may have nationwide coverage. A broker can be handy here as some local banks might not lend to sponsors who are not local but a broker can source quotes for you from a bank that does not have that limitation. CMBS is ruled out as they start at typically only ~$2MM or close to it and then you have Freddie & Fannie that can also lend nationwide but Freddie's SBL program starts at ~$1MM and while Fannie's in theory starts at $750K, their bread and butter is really loans greater than $1MM.

Is it individual mobile homes? If so local banks might be a fit. If it is a mobile home park with predominantly TOH and loan proceeds are at atleast a $1MM, then Freddie & Fannie financing is an option and have nationwide coverage. It would even be non recourse debt. 

Freddie/Fannie is an option for non recourse I/O debt. How much I/O (ranging from one year to full term) depends on the individual deal. I specialize in Freddie & Fannie multifamily financing nationwide, this is all I do, I do not finance any other product type and I am a direct lender and not a broker. Let me know if you have any questions, happy to be a resource.

I work in agency financing and finance MHP's nationwide all the time but typically only finance loans greater than $1.5MM. Loans smaller than that are usually a fit for local banks. 

I receive many pricing guidance requests for Freddie & Fannie Multifamily loans, so I figured I can shed some light on how I as a banker price loans. This will largely be focused on how agencies look at pricing but my background has also been in selling bonds backed by commercial real estate loans in the secondary marketplace.

There is a lot I can write about on break evens, returns, investor spread, securitization, etc but that’s not very relevant or interesting to borrowers and rightfully so as the only thing that matters at the end of the day is the interest rate spread to borrowers.

First and foremost, there is no one size fits all model. It is for this reason, I will underpromise and aim to overdeliver and not the other way around. Borrower A and borrower B getting a quote for the same asset from the same lender on the same day may not even get the same pricing. The variable here is of course the borrower (experience, repeat GSE borrower, etc) but in other cases there are also tons of variables- market, property sub type, Dscr and LTV metrics, interest only period, affordability/% AMI , acquisition or refi, loan term, loan size, fixed or floating, etc.

As you can see there are tons of variables but I will shed light on two important ones- metrics and market.

Fannie have three Dscr/Ltv tiers for the most part- tier 2- 1.25x/80%, tier 3-1.35x/65%, tier 4- 1.55x/55%. Freddie has something very similar well.

These tiers are important to know as you get different pricing based on the tier. At a very high level, I get real time data from the pricing desk every day that will tell me for for example- tier 2, 10 year term, >$6MM loan, fixed rate, 151-191 bps spread. Different tiers (2,3 or 4), loan terms (5,7,10 or 12+) will have different spreads and that will change based on Loan size and whether it’s Multifamily or manufactured housing, senior living, student housing, etc as well.

Market- Fannie provide the bankers every year something called form 4660 that will be updated frequently. This is the Bible. This dictates what we can do and cannot do. There are times we can confidently quote without even consulting Fannie and there are times we have to go through a pre approval process with Fannie. This form notes for example that Boston MSA is a "strong" market. "Strong" is Fannies internal classification and that matters as in those markets, 80% LTV for acquisitions is possible and interest only terms can potentially be upto 180 months.

Houston MSA for example is a “pre-review” market. This means we have to go back to Fannie and they will have to sign off before issuing a quote. A pre-review market has limits on leverage, interest only periods,etc

You have a few other market classifications but hopefully this makes it clear on how markets impact pricing, leverage, and even terms like interest only periods or response times before getting a quote.

My best advice to borrowers- given the variables in play with not only the asset but also the market , engage with your banker early in the process and also choose a banker that will not over promise and under deliver. It is very easy to verbally quote a deal but as you can see above, several variables will have an impact and then slowly leverage will start to get dialed back and pricing will creep up.

I have worked with institutional sponsors (Starlight, Bridge, Taurus, etc) who might be buying large MF properties at 3 or 4 caps. But they are getting fixed rate debt or floaters (with caps or swaps) at very attractive terms that are typically not available to most non institutional borrowers. Example-80% LTV at 200-250 bps over Libor. Lenders can go upto 80% LTV by having an A/B structure. Loans can be interest only thus boosting cash flow and debt can be structured in a way that there is future funding available for all the capex required. Say, the plan is to invest $20K/unit over the course of 3 years, the lender can fund all of that capex thus reducing the amount of equity needed from the sponsors. Lenders do this as that capex spent is going to raise rents by $200 or 300/unit and that will increase the exit metrics so there is less refinance risk. I dont even need to go into the value add business plan side of things as experienced sponsors' track record speaks for itself but as a banker, hope my comment sheds light on cheap debt is an important part of the overall strategy.

What is the loan size? If you or the key principals in the borrowing entity are experienced or have owned MF properties before, PM me. Happy to help. 

Historical Financials are typically provided during the DD phase and not in the prelim stage. At that stage, you work off the OM and the in place financials the seller/broker has provided. Some sellers do like to see a LOI and that your qualified to purchase before providing historicals. Get a one page term sheet from a lender. Its non binding for the lender and you get to use the DD period to decide if you want to back out of the purchase.

I am a CMBS lender and work on commercial real estate deals from $2MM and up and my average loan size is around $35MM. You dont need to show me my returns. Our internal models would show us that. What we need is a minimum net worth (100% of the loan amount) and liquidity (10% of the loan amount) from you and the collateral to be able to produce atleast a 1.25x cover. 25-30% minimum fresh equity in the deal is ideal. I agree with the other comments on here that a little education first would be very helpful so that you will be on the same page when you speak with lenders and equity partners. My profile has a comment that recommends some books to read. And baby steps first- a small multi would help you get your feet wet and that will give you the confidence when you dive into bigger deals.