By Todd McNeill
Owners of stabilized multifamily properties should be rushing to the nearest Fannie Mae DUS Lender without passing go and without collecting $200. The stock market has seen money flowing in and out of securities so often that many have chosen to park their holdings in treasuries until the roller coaster ride finally settles out. As a result, treasury yields are at historic all-time lows, making it the best time in decades to borrow long term, fixed-rate money.
Rates have been low for some time now, so why should Borrowers now be rushing to refinance their multifamily holdings?
Since the Great Recession took hold, the resulting credit crunch put a halt to most all refinancing activity and a corresponding drop in commercial property sales followed. With the lack of activity, property values became murky at best making the appraisal process a real crap shoot for even the strongest properties. As a result, it was rare that one could actually appraise high enough to take advantage of the long term rates.
As the recession has slowly eased, the severe fallout from the housing market has caused a huge upward shift into the rental market. With a lack of funding from hemorrhaging banks, the ability to build new multifamily projects has been scarce for the last 3 years. Thus, multi-family occupancies soared and rent growth has become staggering in many markets. The equity providers that are chasing yield quickly turned their sights to multifamily assets and trades are happening at pre-recession cap rates making appraisals no longer an issue in most cases.
With values on most all types of multifamily properties at pre-recession levels or greater, now is the best time to lock in your long term fixed-rate mortgage with a government backed FNMA loan.
Metropolitan Capital Advisors is a Fannie Mae DUS Correspondent so that our firm can provide competitive long term fixed rate financing without incurring additional origination fees. Prospective Borrowers can benefit from MCA’s “hands on”, service-oriented approach at the same cost of going direct to a DUS Lender.
MCA has closed over $40 million of FNMA loans since Labor Day with Borrowers locking in 10 year fixed rates as low as 4.7%, with an amortization of 30 years!!! Some of these loans were at 80% Loan to Value with rates still in the sub 5% range. With rates so low, debt coverage has not been an issue which allows Borrowers to increase cash flow after debt service while keeping risk exposure low. Moreover, your multifamily property does not have to be Class A “core” property to obtain aggressive financing terms. B & C Class properties can qualify for refinance as well as properties located in secondary or tertiary markets.
Due to the uncertain future of government backed loan programs such as FNMA and Freddie Mac, it has never been a better time to refinance as many assets as possible. In some cases, it has made sense for some of MCA’s clients to pay off mortgages with pre-payment penalties because of the high valuations and the low interest rates that can be obtained. In these cases, trapped equity was able to absorb the pre-payment penalties while increasing the investor’s cash on cash returns substantially post refinance.
Just because you may sell a property doesn’t mean you shouldn’t consider locking in these long term rates. FNMA and Freddie Mac loans are assumable and unlike CMBS loans, most have the ability to get a “Supplemental Mortgage” which make it easier for buyers of these properties should you choose to sell the asset in the future and more leverage is needed to consummate the sale. As interest rates rise, your property will actually become more valuable with the historic low interest loan locked in. Who knows how long this interest rate environment will last? But for now, fixed rate apartment loans are the best item on the menu.