All Forum Posts by: Kevin Owens

This unfortunately would not fit any of our programs. Our deal sizes have a 5 unit minimum and $1MM minimum loan balance. 

What product type? Multifamily (what unit size) or single-family?

That is correct. We should talk on the phone about this in detail. 

From where I stand in the lending world, you will have a hard time as the deal size gets smaller and vacancy increases. An example:

If you have a $2.5MM loan that is 90 for 90 ( 90% occupied for 90 days), you likely have a good candidate for a Fannie/Freddie SBL deal, same can be said if the deal exceeds $5MM/$7.5MM. If you have a $2MM deal that "needs work", it's going to be tough especially if you are chasing non-recourse. There are lenders that will loan on small bridge, but the pricing is ugly (as of this post). I would recommend underwriting backwards with an agency exit to structure the take-out if a bridge loan is needed. Sell the exit. Additionally, in the small loan space banks have stepped up on recourse terms (per usual). While bridge is expensive, remember you'll likely be in it for only 6 to 24 months depending on what you need to exit the deal. Most bridge deals are 24 or 36 months plus extensions. Depending on the prepay, a 36 month term is ideal. 

@John Blanton

**Assumes a conventional Freddie/Fannie loan...SBL is a much more detailed conversation. 

On the multi side as a former Freddie employee in underwriting and now a Freddie/Fannie originator, 3 years IO tells me it's likely a 10 year deal or longer. 3 years is typical, on 7 year paper it will tap out at 2 years (there are refinance test restrictions, etc...). The former details assume a high leverage loan (75/80% LTV). Most syndicators will use IO to boost returns, it is typical in the larger deal space. Full-term IO opens up at 70% LTV, but with COVID now about 65% LTV. Prepay penalty is what you should be focused on with a 5 year refi on a 10 year term. If the GP is using a 12 year term to boost a 3 year IO period, the prepay could be ugly if YM or STD DEF, depending on rates, which we cant forecast 5 years from now.

If a 5 year exit is the plan, you should consider floating rate paper, the exit is 1% (assuming Fannie/Freddie). Most don't go with floating rate paper because A) most dont understand it and B) they dont want unconformatable conversations with equity when the rates change but...you buy a cap and the cost of the cap plus the 1% exit can be less than the YM/STD DEF..no one is a fortune teller but most planned refis will embrace the floating rate deal if a 10 year term with 3 years of IO and refi out on month 37 (once IO ends) then recast the IO period with a new 10 year term and 3 years of IO. 

In short, embrace the 3 years of IO, learn to love it...I know the returns will. 

This deal cannot be funded through Fannie/Freddie SBL programs. The vacancy is too high. 

The following details are for non-recourse bridge debt. 

Bridge money is starting to open up. Current appetite is...it depends. A lot of high LTV non-recourse bridge money is trading in the 7,8,9% range inclusive of LIBOR..lower rate money is for lower LTV deals and truth be told, bridge money really opens up above the $20MM mark. There are avenues in the non-recourse world, but the rates will be high.

@Rich Weese

Fannie and Freddie will permit pref equity, but it must be soft pay rather than hard pay. For your notes, I came directly from Freddie Mac to Berkadia to facilitate agency business. If you have any questions, we can set up a call. 

@Duke Giordano

I agree, the cash required that isn't earning return is exceptionally punitive. Right now, we are working deals that require nearly 10% more in escrows than planned. Depending on deal size, this is real money that goes into the millions, much more in escrows than planned not to mentioned LTV buckets have been reeled in from markets that once traded at 80% are now 75%/70%. Nationally, we have whisper numbers of May collections proving strong or just slightly inside or outside of April, nothing too drastic but markets like Vegas and Orlando have a tough road ahead. My personal opinion is that June/July/August will be troubled months.

@Brian Burke

Correction: Freddie is requiring 6 to 9 months of debt service and Fannie is requiring 12 months + taxes + insurance + replacement reserves funded up front. Each of course require immediate repairs. These escrows can be fully or partially waived at certain LTVs. 

@Duke Giordano

I disagree, I don't think the agencies (true to form multi) are being restrictive to getting deal flow going. The Fed is buying agency backed paper to keep the backend markets liquid (which is Fannie and Freddie's primary mission, market liquidity, rather than affordable housing, etc..these other goals are secondary to liquidity). They are doing a ton of business right now of which the majority are refinances (mostly because acqs fell out). The reality is, COVID-19 escrows will be returned to you anywhere from 12 months to 36 months and to have those escrows in place (while one is certainly less punitive than other) is a wise decision to make. 

We are not seeing the same liquidity in the CMBS or the CLO markets and Life Companies are locked up right now, barely making bids for product.

Freddie SBL does not do construction. You'll need a bank or private construction lender depending on deal size.