BLOGS: Multifamily Focus

2009-06-29, 12:53

Freddie Mac CME Program Offers Borrower-Friendly Terms

By: Multifamily Real Estate Industry Team
As the economic crisis and its related fallout continues to chug along, the GSE’s remain one of the main source of financing available for multifamily owners. Those in search of financing should consider Freddie Mac's new Capital Markets Execution (CME) program. CME was just launched in the last month or so. CME multifamily loans are offered on more favorable terms than Freddie's standard portfolio loans. CME loans enter a pool of loans from which Freddie sells loans to an institutional investor who securitizes the loans and then sells securitized bonds backed by the loans themselves.

Here are some specifics:

  • The CME program offers better interest rates than Freddie Mac's standard loan (up to 30 basis points lower).

  • The borrower may take out a Freddie Mac supplemental loan after only 12 months.
    The CME program also offers some flexibility on appraisals, as it allows for up to a 5 percent discrepancy in the appraisal amount for the property, with a commensurate reduction in the loan amount from the rate-locked amount. No breakage fees are due in such event.

  • On the down side, the CME loan documents are much less flexible than Freddie Mac's standard loan documents. So, if you have a standard template of loan modifications that you previously customarily used in Freddie Mac loans for your portfolio, those will generally not be accepted under the CME program. We have been advised that material provisions of “favored” borrower’s loan documents that are critical in nature for that borrower (such as those relating to the transfer provisions) will be considered.

  • Under the CME program, borrowers must be special purpose entities.

  • Finally, the CME documents provide for defeasance rather than yield maintenance (after the first 2 years).

The information below is from the CME program description on Freddie Mac’s website:

Asset Type Multifamily; age-restricted multifamily, multifamily with student concentration; purpose-built student housing; cooperative housing; Section 8 HAP

Borrowing Entity Borrowers must be a SPE if the loan is $5,000,000 or more

Loan Size* $5 to $100 million (FM may permit loans as low as $3.5m in strong markets)

Loan Terms 5, 7, and 10 year

Interest-Only Period Partial Interest-Only (IO) may be approved at the sole discretion of Freddie Mac; Full Term IO not available

Minimum DCR Acquisition: 5 to less than 7 years: 1.30x; 7 to 10 years: 75% Refinance: 5 to less than 7 years: 1.30x (1.35x for cash-out refi); & 7 to 10 years : 1.25x (1.30x for cash-out refi)

Maximum LTV Acquisition: 5 to less than 7 years: 70%; 7 to less than 10 years: 75%; greater than 10 years: 80% Refinance: 5 to less than 7 years: 65%; 7 to less than 10 years: 70%; greater than 10 years: 75%;

Maximum Amortization 30 years

Amortization Calculations Actual/360 standard; 30/360 available

Lockout Period 2 years

Prepayment Provisions Yield maintenance until securitized followed by 2-year lockout; defeasance thereafter. No penalty for final 90 days. If loan is not securitized within first 2 years then yield maintenance applies for the life of the loan.

Tax & Insurance Escrow Required

Replacement Reserve Deposit Required

Recourse Requirements Non-recourse except for carve outs

Supplemental Loan Availability Yes, available 12 months after closing only with a Freddie Mac Supplemental Mortgage; refer to Supplemental Mortgage term sheet for sizing parameters

Premium Availability Buyups permitted for up to 1% of loan amount

Application Fee Greater of $2,000 or 0.1% of loan amount

Note that this product is not available for new construction projects. Freddie Mac does not offer standard construction loans; however, there is Freddie’s Conventional Forward Commitment Program, which offers forward financing for the new construction or substantial rehabilitation of multifamily conventional, non-subsidized properties. Check out a basic termsheet for this program at

(This entry posted by Mark Polston, a member of Womble Carlyle's Real Estate Development group)

2009-06-18, 12:34

Apartment Defaults In the News

By: Multifamily Real Estate Industry Team
An interesting analysis of some of the reasons why apartment loan defaults lead other types of commercial real estate loan defaults appeared recently in an article by Ilaina Jonas with the Reuters' News Service. Among the reasons cited are:

1. Apartment building prices peaked before other types of commercial real estate (2006 vs. 2007), so deterioration has come on earlier;

2. Falling rents and occupancies have pushed down values 35 to 45 percent, and this, along with the difficulty of getting any loans, has pushed the default rate higher than for other types of assets;

3. In some markets, prices were driven up by investors planning to convert rental units to condominiums --- until the markets collapsed, and condominiums (now rental condos) down market rents;

4. While the overall U.S. unemployment rate in May was at 9.5 percent, among 18 to 24-year olds, it was 15 percent. About 70 percent of this age group are renters who are now doubling up or moving in with their parents.

None of these are new insights, certainly. From talking with people in the industry, however, it seems that the rate at which young adults are moving back home has been somewhat surprising, and the widespread availability of this option could hardly have been anticipated. It seems reasonable to anticipate, though, that once the job market begins to open up, these young people will be eager to get out on their own again --- and will create a ready market for the industry.

To read the entire article, go to

(This entry posted by Karen Estelle Carey, a member of Womble Carlyle's Real Estate Development and Construction groups.)

2009-06-08, 12:55

Now is a Good Time to Reposition an Apartment Community

By: Multifamily Real Estate Industry Team
Robert A. Koch, AIA, in his May 20, 2009, “White Paper on Apartment Property Repositioning” published in Multi-Housing News, states that this is a good time for apartment owners to consider repositioning their apartment properties. Repositioning involves more than renovation; it also involves matching a property to the market in which it is located. Neighborhoods and what makes an apartment project attractive in the market can change over time.

Reevaluating a property’s positioning is not advisable at this time, it is essential. Current financial conditions have led to dramatic shifts in not only property values but the profiles of prospective tenants. The current turmoil in the financial markets has led to a decline in asset values. At the same time, former homeowners who have been displaced either by foreclosure or by abandoning homes that are under water have led to a pool of prospective tenants who have damaged credit. Foreclosures and loss of value in the residential market have created a shadow rental market for condominium units and houses that is increasing the real inventory of available rental units. Additional units are also available in fractured condominiums (i.e., condominium projects where only part of the available units have been sold) and condominium properties that have been taken off the market and offered as rental properties. These properties are likely to create downward pressure on rents and that trend is likely to continue for some time.

Property owners must face these realities and make a realistic assessment of the positioning of their properties, both where they are and where they want them to be. Only then can a property owner decide how and whether to reposition their property.

(For more information visit

(This entry posted by Erica Harvey, a member of Womble Carlyle's Real Estate Development group)
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