Finding Financing in Today's Market

As the national overview indicates, multifamily is still an active property sector; however, financing for transactions remains difficult. In this regional roundup, CCIMs nationwide share strategies for securing multifamily financing in their markets.

New York

"It's important to be aligned with local portfolio lenders who understand the market and have been through more than one real estate cycle. These lenders, who may fund up to $50 million, are still in business because they kept course with their model, which is conservative, common-sense lending — loan to value in the 60 percent to 65 percent range and debt service derived from present cash flows. Cash flow and the debt it can support at the 1.25 coverage ratio commonly required makes sense today."
—Jimmy Vattes, CCIM, associate managing director, Mortgage World Bankers, Astoria, N.Y.


"Borrowers are having difficulty sourcing construction debt for multifamily projects. Construction loans are available only to the most experienced developers, and even then, senior loans are limited to the 65 percent to 70 percent LTV range driven by underwriting to 1.25 DCR on stabilized net operating income without trended rents. With the market for syndicated loans virtually shut down, construction loans over $25 million are almost impossible to source. Top-tier developers once deterred by the Federal Housing Administration's perceived stigma now are embracing such financing programs. The FHA 221(d)(4) program is by far the most accessible source of construction financing (90 percent loan to cost). FHA 221 (d)(4) can also be used to finance the substantial rehab of multifamily properties. The FHA 223(f) program is an option for acquisition of existing multifamily projects. Both Fannie Mae and Freddie Mac offer attractive acquisition/rehab financing options as well."
—Patrick G. Fitzgerald, CCIM, vice president, KeyBank Real Estate Capital, Orlando, Fla.

Southern California

"To get a multifamily deal done in Southern California, expect to see a combination of higher debt coverage ratios of 1.20 and up, recourse loans, lower LTV ratios of 75 percent or less, and financially strong borrowers. From a bank's perspective, the borrower's experience and personal finances, the asset's quality, and the market are key. Lastly, the property and submarket will be looked at more carefully in regard to vacancy rates and changes in the local job market."
—Ace K. Baker, CCIM, multifamily lending consultant, Washington Mutual, La Mesa, Calif.


"Houston is currently a pre-review market for Fannie Mae. While apartment loans are being made, the LTV is often limited to 65 percent to 70 percent. When Fannie Mae designates a certain location as a pre-review market, whether it's a city or an entire state, it is due to the number of multifamily loans in that market that are currently in default. Some of the highest default rates among multifamily loans today are from out-of-state borrowers who didn't have previous experience in the market. Inexperienced borrowers requesting financing are wise to seek out local partners who have prior multifamily experience."
—Todd A. Kuhlmann, CCIM, president, KC Capital, Austin, Texas


"Financing remains readily available for quality properties with strong operating history and experienced sponsorship. Fannie Mae and Freddie Mac continue to be the debt providers of choice. An 80 percent LTV ratio is still achievable, but proceeds are increasingly being restricted by the minimum DCR of 1.25 over a maximum 30-year amortization. Recourse also is being utilized more frequently by banks and life companies as a means to make deals with higher perceived risks."
—Aaron M. Mesmer, CCIM, acquisitions and investment sales, Block and Co., Kansas City, Mo.

Pacific Northwest

"One spot of relief for Pacific Northwest mortgage brokers came in October 2008. For more than a decade, Washington Mutual had been the 800-pound gorilla when it came to apartment financing. That all changed with its takeover by JPMorgan Chase. Although they are still making loans, WaMu's rates and terms now fall more into the middle of the pack. As a result, real estate agents are calling mortgage brokers for financing that they normally would have taken directly to WaMu."
—Douglas G. Marshall, CCIM, president, Marshall Commercial Funding, Hillsboro, Ore.

Gulf Coast

"Terms for permanent loans range from five to 30 years with a 30-year amortization period. Partial-term, interest-only loans (one to two years of interest-only payments with the balance of the loan term amortizing) remain available for multifamily properties with good upside potential and strong sponsorship. However, the lending market remains volatile, and quotes have a much shorter shelf life. If you receive a quote you like from a lender you trust, act fast."
—Chad Thomas Hagwood, senior vice president, Capmark Finance, Birmingham, Ala.


Improving Loan Packages

Spring 2022

A lot of detail goes into an ideal loan package, but securing favorable terms can pay off for decades.

Read More

Financing Green Initiatives

Summer 2021

Randy Eckers, chair of the real estate finance practice for Akerman LLC, talks about the Commercial Property Assessed Clean Energy (C-PACE) program, which allows building owners to borrow money to complete projects with repayment made through an assessment on their property tax bill.

Read More

2019: The Year of FASB



Read More

Mixed Signals


Commercial real estate financing is still relatively cheap and fairly accessible, but there is room for volatility. With a Trump administration, the Brexit vote, and an increasing 10-year Treasury Note rate, a lot can change in the commercial real estate lending in the coming months.

Read More