All Forum Posts by: Ian Stuart

To this day, I do not understand why real estate people - in particular - shun and disparage crypto.

I say this, because assets like Bitcoin, Ethereum, and Solana - while seemingly very different to real estate on the exterior - are in fact eerily similar to real estate from both a fundamental value and income potential overview.

Think of the Bitcoin, Ethereum, and Solana blockchain networks as tertiary real estate markets in which population growth & employment / job growth is rapidly outpacing existing residential supply stock, plus new deliveries and proposed future developmemts. To contextualize, these trchnologies are being adopted by new users / wallets at a rate that is outpacing that of the internet, while the supply of existing tokens in circulating (plus new coins introduced to supply) are being gobbled up like hot cakes.

All the while, assets like ETH & SOL pay  native dividend yields of 4-9% that are generated by organic, on-chain “gas fees” (IE - rents) paid by the users of said blockchain networks. What’s more, these yields are denominated in ETH & SOL (not dollars). IE - if you buy 100 ETH @ 4.00% staking reward yield (crypto terminology for dividend), you will earn 4 ETH per year, regardless of the current ETH price. This implies that if ETH appreciates in price due to increased adoption / demand, plus money supply inflation - your ETH staking reward yield ALSO increases. It would be as if you bought a 100 unit apartment complex that yielded 4 additional apartment units (4.00% physical multifamily unit yield) per year!

In addition - like real estate - crypto is highly sensitive to monetary policy and interest rates. As global M2 money supply increases (to service our government’s unsustainable debts) a portion of this M2 trickles down into risk assets - of which crypto is arguably the most sensitive. This is similar to real estate - in the sense that real estate prices (which are essentially leveraged interest rate bets) are highly sensitive to bond prices / yields, which are highly sensitive to global M2 money supply as well.

Lastly, many digital assets (crypto assets) have superior property rights and objectively harder supply schedules than most real estate asset classes do. If you self-custody your crypto assets via a hardware wallet, there is absolutely no way for the government, bad actors, etc to tax or steal your tokens unless you deliberately mess up your operational security or store your assets in a lazy fashion / on exchanges.

Government wants to tax you? Put your tokens on a hardware wallet USB, buy a plane ticket, move to a non-tax jurisdiction, and convert to local currency at current exchange rate. Best of luck freezing my assets. Bad actor wants to steal it? Good luck getting the 24-word seedphrase out of me, especially if you have a multi sig wallet or have fractured your seedphrase across different locations. Gold digger wife wants 50% of your net worth? Good luck with that court order. 

You want to take your real estate with you? Bold strategy, Cotton! You want to ensure your county government won’t hike property taxes next year to cover their dubious spending habits? Lol good one! You decide to skip on your monthly loan payment, or property tax bill? Let’s see how long you “own” that real estate for after the bank / daddy government stops getting there vig. You want to spend zero money on maintenance, while simultaneously ensure that you can sell at top dollar in Year 5 of your 10-year hold? Child please.

As it relates to “hard money” characteristics, and whether or not you believe only 21 million bitcoin can ever be minted… this is when it becomes necessary to understand how basic blockchain technology works. Once you understand the basics of how proof-of-work / proof-of-stake blockchain consensus mechanisms work - then you will understand that these technologies GUARANTEES digital scarcity in a way that cannot be manipulated or interfered with by external parties and/or bad actors (namely - governments).

The lack of enthusiasm for crypto assets on this site I find - mainly - resides in the boomer RE investor demographic. The reason for this is simple. Boomers RE investors have made hilarious amounts of wealth in real estate over the last 40 years because 10-Year Treasury bond yields (and therefore - cap rates) have compressed from ~15% in the early 1980's to ~60bps in 2021. This has caused their asset prices to go parabolic, and has permitted even the least savvy RE investors to become insanely rich in ways that far exceed their investing prowess and/or intellect. All the while, these same boomer investors have been levered up to their eyeballs with 70-90% LTV/LTC mortgage debt THE WHOLE 40-YEAR RIDE. In the words of Steve Eisman from the Big Short… "They mistook leverage for genius". I am happy for them! But make no mistake, these RE returns have been more a result of being in the "right place / right time / right macroeconomic setup" than anything else, regardless of your self perceived operating prowess.

The crypto asset class is not to be shunned and/or written off. Instead, it is an asset class that is worth investigating and understanding before blindly casting judgement. Be curious, do not get complacent in real estate just because the last 40 years have been (mathematically and objectively) a total cake walk from a macroeconomic & total return standpoint. Do not let your bias for RE color your judgement - especially if you are a boomer that by definition has never had to invest during a prolonged bear market in U.S. Treasury Bonds. All long term secular trends eventually come to an end.

In 2024 - Berkadia was the #1 Freddie Mac Optigo & #2 Fannie Mae DUS multifamily lender in the United States, closing ~$13.45 billion dollars of multifamily loan volume on behalf of our capital partners at Freddie Mac & Fannie Mae. 

Freddie Mac & Fannie Mae both offer "Small Balance" multifamily permanent loan programs ranging between $1,000,000 and $9,000,000 for multifamily apartment complexes with well-capitalized, experienced borrowers located nationwide. 

Below are summaries of each program. Please send me a DM for more information. 

FREDDIE MAC SMALL BALANCE LOAN (SBL) - MULTIFAMILY 

Loan Purpose: Permanent Financing (Refi & Acquisition)

Loan Proceeds: $1,000,000 - $7,500,000

Loan Sizing: 70-80% LTV; 1.20x-1.40x DCR; 30-Year Amortization

Loan Term: 5-10 Year Term (Fixed), 10 or 20 Years (Hybrid ARM)

Interest Only: Partial-Full Term IO Available

Rate Types: 5-10 Year Fixed Rate & 10-20 Year Hybrid ARM Rate

Rates: High 5.00%'s - Low 6.00%'s

Rate Lock: Rate Lock @ Application

Non-Recourse: Non-Recourse w/ “Bad Boy” Carveouts

Prepayment: Standard - Greater of YM or 1.00%

Flexible Prepay: Flexible Options – Stepdown & Extended Open/Par Periods

Rate Buydowns: Yes – Rate Buydowns Available Up to 2.00%

Assumable: Yes – Assumable Loan

Cash Out Refi: Yes – Cash Out Refi OK

Loan Guarantor Financial Strength: Liquid Assets >=9 Months P&I, Net Worth >= Loan Amount, FICO >=680

Multifamily Experience Requirement: 3 Properties Owned >=2 Years, or 1 Property Owned >=5 Years

FANNIE MAE SMALL LOAN – MULTIFAMILY

Loan Purpose: Permanent Financing (Refi & Acquisition)

Loan Proceeds: $1,000,000 - $9,000,000

Loan Sizing: 80% LTV; 1.25x DCR; 30-Year Amortization

Loan Term: 5-30 Year Term

Interest Only: Partial-Full Term IO Available

Rate Type: Fixed Rate

Rate Lock: Rate Lock @ Loan Commitment

Rate Structure: Treasury Yield + Spread

Rate: High 5.00%'s - Low 6.00%'s

Non-Recourse: Non-Recourse w/ “Bad Boy” Carveouts

Prepayment: Yield Maintenance; 3 Mos Open @ 1.0%; 3 Mos Open @ Par (Default)

Flexible Prepay: Flexible Prepayment Options Available

Escrows: Taxes, Insurance, Replacement Reserves

Rate Buydowns: Yes - Rate Buydowns Available Up to (1.25%-2.00%)

Assumable: Yes – Assumable Loan

Cash Out Refi: Yes – Cash Out Refi OK

Have you ever received conventional multifamily quotes from Freddie Mac & Fannie Mae before? If not - I highly recommend. 

For context, Freddie & Fannie offer 5-30 year term (fixed & floating rate), partial-full term IO, high leverage (80% LTV; 1.25x DCR; 30-year amortization), non-recourse financing priced in the high 5.00%'s - low 6.00%'s. With a rate buydown, you'll see rates in the low-mid 5.00%'s. The beauty of agency financing is that you can secure 2nd lien supplemental financing after 12 months, and the loans are fully assumable in the event that you decide to sell down the road.

If you're looking for a bridge loan execution (as opposed to permanent financing), I recommend hiring a broker to shop the bridge debt to life companies, debt funds, banks, and credit unions. 

For context - Berkadia is the #1 Freddie Mac & #2 Fannie Mae multifamily lender in the United States (we're the largest agency lender in the country). We closed ~$13.5 billion dollars in loan volume with the agencies last year. We're also a correspondent lender for 50+ life companies, and broker multifamily debt to debt funds, CMBS, banks, and credit unions. Send me a DM if you're interested in quoting a few scenarios.

 Regarding buy downs, rate benefits vary by loan term. See below for a full breakdown of Freddie SBL / Fannie Small Loan buydown costs & rate benefits.

5-Year Loan: 25bps/1.00% buydown 

7-Year Loan: 20bps/1.00% buydown

10-Year Loan: 15bps/1.00% buydown

Freddie SBL allows you to buydown up to 2.00% across the board (but no more than 2.00%).

Fannie Small Loans allow you to buydown up to 1.25% on a 5-year, 1.75% on a 7-year, and 2.00% on a 10-year.

 The term “Mission Driven” is internal Freddie Mac & Fannie Mae terminology that defines whether or not a unit is rented at a “naturally affordable” level. Any unit rented at a level <=80% AMI is considered to be a “Mission Driven” naturally affordable unit.

For example, say you’re buying a 10-unit property consisting entirely of 2-bedroom units in an area where the 80% AMI (Mission Driven) rent cutoff for 2-bedroom unit types is $2500. If 7 units are rented at $2400 (below the 80% AMI Mission Driven rent threshold), and 3 units are rented at $2600 (above the 80% AMI Mission Driven rent threshold), then Freddie & Fannie would consider this a “70% Mission Driven” deal. IE - 70% of total units are rented at levels <=80% AMI.

The higher your “Mission Driven %” (IE - the more units you have rented at levels <=80% AMI) the lower your interest rate will be. The lower your “Mission Driven %”, the higher your interest rate will be.


Note - Mission Driven 80% AMI rents vary by unit type [IE - Studio, 1 Bed, 2 Bed, 3 Bed, etc] and location / zip code. Mission Driven 80% AMI rents also only account for the “tenant-paid portion” of total rent. IE - if any units are receiving Section 8 vouchers or other forms of housing assistance, Freddie & Fannie only look at the tenant paid portion of rent when determining whether or not the unit is Mission Driven @ 80% AMI levels.

For example, let’s stick to the 2-bedroom $2500 Mission Driven 80% AMI cutoff example above. Say you have a 2-bedroom unit rented for $3200, but your tenant is receiving $700/mo Section 8 vouchers. Although the total rent of $3200 is above the $2500 Mission Driven 80% AMI threshold, the *tenant paid rent* is only $2400. $2400 tenant paid rent + $700 S8 voucher rent = $3200 total rent. This unit would qualify as mission driven @ 80% AMI. However, what if this unit was only receiving a $600 S8 voucher? Well in that case - the tenant paid rent portion is $2600 and therefore is above the $2500 cutoff / not Mission Driven.

 

Hey Andrew: 

The Freddie Mac Small Balance Loan (SBL) and Fannie Mae Small Loan multifamily programs could be a good fit for a project like this. Below are summaries of each loan program for future reference. 

Freddie Mac Small Balance Loan (Dauphin County, PA)

Loan Purpose: Permanent Financing (Refi & Acquisition)

Loan Proceeds: $1,000,000 - $7,500,000

Loan Sizing: 70-75% LTV; 1.30x DCR (Small Market)

Amortization: 30 Years

Loan Term: 5-10 Year Term (Fixed), 10 or 20 Years (Hybrid ARM)

IO Term: Partial Term IO (70-75% LTV; 1.30x DCR); Full Term IO (60% LTV; 1.45x DCR)(Small)

Rate Types: Fixed & Hybrid ARM

Rate (Est): 6.10%-6.60% (Assumes Mission Driven)

Rate Lock: Rate Lock @ Application

Non-Recourse: Non-Recourse w/ “Bad Boy” Carveouts

Prepayment: Standard - Greater of YM or 1.00%

Flexible Prepay: Flexible Options – Stepdown & Extended Open/Par Periods

Rate Buydowns: Yes – Rate Buydowns Available Up to 2.00%

Assumable: Yes – Assumable Loan

Cash Out Refi: Yes – Cash Out Refi OK

Fannie Mae Small Loan (Dauphin County, PA)

Loan Purpose: Permanent Financing (Refi & Acquisition)

Loan Proceeds: $1,000,000 - $9,000,000

Loan Sizing: 80% LTV; 1.25x DCR (Nationwide Market)

Amortization: 30 Years

Loan Term: 5-30 Year Term

IO Term (PTIO): Partial Term IO @ 80% LTV; 1.25x DCR

IO Term (FTIO): Full Term IO @ 65% LTV; 1.35x DCR

Rate Type: Fixed Rate

Rate Lock: Rate Lock @ Loan Commitment

Rate Structure: Treasury Yield + Spread

Rate (Est.): 6.50%-6.75% (Assumes Mission Driven)

Non-Recourse: Non-Recourse w/ “Bad Boy” Carveouts

Prepayment: Yield Maintenance; 1.00%; 3 Mos Open @ Par

Flexible Prepay: Flexible Prepayment Options Available

Escrows: Taxes, Insurance, Replacement Reserves

Rate Buydowns: Yes - Rate Buydowns Available Up to (1.25%-2.00%)

Assumable: Yes – Assumable Loan

Cash Out Refi: Yes – Cash Out Refi OK

Hey Jeremy: 

Funny coincidence, I also live in Bothell and am a Freddie Mac SBL lender with Berkadia. For context, Berkadia is the #1 Freddie Mac, #2 Fannie Mae, and #4 HUD multifamily lender in the nation (we're the largest combined GSE / HUD lender in the nation).

Below is a full detail of the Freddie Mac SBL loan program for future reference: 

Freddie Mac Small Balance Loan – King County, WA (Top Market)

Loan Purpose: Permanent Financing (Refi & Acquisition)

Loan Proceeds: $1,000,000 - $7,500,000

Loan Sizing: 80% LTV; 1.20x DCR (Top)

Amortization: 30 Years

Loan Term: 5-10 Year Term (Fixed), 10 or 20 Years (Hybrid ARM)

IO Term: Partial Term IO (80% LTV; 1.20x DCR); Full Term IO (65% LTV; 1.35x DCR)(Top)

Rate Types: Fixed & Hybrid ARM

Rate (Est): High 5.00% / Low 6.00%'s (Rate Buydowns Also Available)

Rate Lock: Rate Lock @ Application

Non-Recourse: Non-Recourse w/ “Bad Boy” Carveouts

Prepayment: Greater of YM or 1.00% (Default)

Flexible Prepay: Flexible Options – Stepdown & Extended Open/Par Periods

Rate Buydowns: Yes – Rate Buydowns Available Up to 2.00%

Assumable: Yes – Assumable Loan

Cash Out Refi: Yes – Cash Out Refi OK

Hey Zach: 

Because this is BiggerPockets - I'm going to assume we're talking about agency "Small Balance Loans". IE - loans <=$9,000,000. Below is a high level overview of the Freddie Mac SBL, Fannie Mae Small Loan, and HUD 223(f) programs.

Freddie Mac SBL & Fannie Mae Small Loans (<$9.00M): Freddie & Fannie both offer "Small Balance" permanent financing ranging from $1.00-$7.50M (Freddie SBL) and $1.00-$9.00M (Fannie Small Loans). Loan sizing varies by market, but in most areas your loan will be sized to 75-80% LTV; 1.20-1.25x DCR; 30-year amortization. Freddie SBL offers 5-10 year fixed rate options, as well as 10-20 year "hybrid ARM" options which start with an initial 5-10 year fixed rate period, followed by a 5-10 year floating rate period. Partial interest only is available at 1.20-1.25x DCR (max leverage), whereas full term IO is available at lower leverage points >=1.35x DCR in most markets. Rates range between 5.75% - 6.25% for max leverage 1.20-1.25x DCR financing, with lower rates available for lower leverage loans >1.30x DCR's, and buydowns. Agency small balance loans are non-recourse. The agencies require all properties be - on average - 90% occupied over the prior 90 days (IE - the property needs to be 90% occupied on average over the trailing 3-months leading into quote / commitment). We can close in 45-90 days depending on the speed of the borrower. The agencies have minimum borrower loan guarantor financial strength requirements (IE - liquid assets => 9 months P&I; net worth >=100% loan amount; FICO >680). They also have minimum experience requirements (IE - ownership of at least 3 multifamily properties for 2 years, or 1 multifamily property for 5 years). If you're a relatively new multifamily operator, you'll likely be required to hire a professional management company (inexperienced owners are typically not allowed to self manage the assets).

HUD 223(f) Fixed Rate Permanent Loan: The HUD 223(f) is a fixed rate, 35-year term, high leverage (87% LTV; 1.15x DCR), fully amortizing loan product with a 10-year stepdown prepayment structure (10-9-8-7-6-5-4-3-2-1%; Open @ Par). Rates are currently in the mid-high 5.00%'s, plus mortgage insurance premium (MIP). MIP ranges from 25-60bps depending on whether the property is market rate / affordable / broadly affordable / green. In most cases - we're talking about a market rate property - and those are subject to 60bp MIP. HUD 223(f)'s take a long time to close (6-9 months, sometimes long), so they are not a product that you want to use to facilitate an acquisition (only use HUD 223f loans to refinance properties that you already own). Although HUD loans offer great leverage, they are a pain to execute. In addition to taking 6-9 months to close, they are also subject to (i) annual audits, (ii) annual REAC property inspections, (iii) recurring annual MIP payments on top of your interest rate, (iv) large initial deposits to the replacement reserve, (v) commercial space limitations to 15-20% EGI / 25% NRA, and (vi) less forgiving underwriting with 7.00% minimum vacancy rates when determining our underwritten NOI.

Huntsville was the market to be buying in ~5 years ago. That said from what I hear it's very oversupplied now. Best of luck. 

Hey Justin: 

Freddie Mac's SBL program doesn't allow subordinate debt (IE - seller carry financing is not allowed behind Freddie SBL 1st lien financing). You'll have to ditch the seller financing and have skin in the game.

Freddie also requires that borrowers meet minimum financial strength requirements (IE - liquid assets equal to 9 month's P&I [bare minimum], net worth greater than or equal to loan amount [bare minimum], FICO>=680). 

Freddie also requires that the borrower loan guarantors demonstrate prior multifamily experience. Specifically, the the loan guarantors need to have controlling ownership in at least (i) 3 multifamily properties [with the first acquired at least 2 years ago], or (ii) 1 multifamily property that has been owned for at least the last 5 years. 

Minimum loan size $1,000,000 [bare minimum]. If you have limited prior experience owning / operating multifamily assets, they'll also require you to use a professional property manager with multifamily experience. IE - they do not let inexperienced new investors self-manage their own properties.