The following is an except from the Sperry Van Ness Newsletter. If you would like a copy of the complete newsletter which includes all product types, please contact me. neil.victor@svn.com
Welcome to the 4th issue (Volume 1, Issue 4) of the Sperry Van Ness | Better Capital Partners-Capital Market and Interest Rate Update Newsletter. For those readers that missed our first few issues, each week or so we will provide our readers with an overview of the following: National commercial real estate interest rates and underwriting for the major property types, marketplace conditions and how they affect various property
types nationwide, insightful capital market analysis with a personal viewpoint and focused subject matter in every newsletter.
Multi-Family:
Written By: Jon Hosea, Principal SVN-BCP): The multi-family product type is still the favored property type for
agency and non-agency lenders nationwide. Overall purchase transactions remain thin, as most on this call already know. This is primarily due to the continued bid/ask gap so prevalent across the nation. We have found that the refinance business is relatively strong in this sector with hundreds of millions coming due in the third and fourth quarter of 2009. We also project that approximately $275 Billion will come due in 2010. Although agency lenders have an ingrained advantage to refinance loans that they currently service, this is only true in
situations such as refinancing FNMA loans with FNMA. This advantage evaporated in instances such as refinancing a FNMA loan with Freddie or HUD, and especially so with HUD where Fannie doesn’t offer the amount of leverage HUD can provide. Looking at the Fannie and Freddie programs, adjustable financing programs are priced around 4.60% to 4.80% with the interest rate capped at approximately 300 basis points above
the start rate. Acquisition LTV’s are still as high as 80%, but drop to 75% on cash out refi’s and underwriting debt service coverage ratios are as low as a 1.05 against the caped rate. Fannie and Freddie fixed rate loans with 5, 7 and 10 year terms are currently pricing at 5.70%, 6.20%, and 6.30% respectively. LTV’s are similar to the adjustable rate programs previously mentioned. Debt service coverage ratios are starting at 1.25 for both small loan and large loan programs on underwritten net income. Regarding HUD, it is currently the shining
star from both a loan sizing and interest rate perspective. HUD’s 35 year loan programs have recently been
pricing as low as 5.40%. Even if you include the 45 basis points for the MIP, the all in cost of debt is 5.85%, or 45 basis points below the Fannie or Freddie 30 due in 10 loans, just mentioned. Their old school prepayment penalty of 5,4,3,2,1 after lock out makes this loan program even more attractive when compared to Fannie and Freddie’s Yield Maintenance prepayment standard. Please remember that the HUD loan sizing is based on a 1.18:1 DSCR with a 35 year amortization with cash out LTV’s at 80%, or 85% with no cash out. All this said, we have definitely entered an environment where the more common loan sizing constraint is Loan to Value. Let me also add that most lenders, agencies and banks, are still looking for borrowers with previous multi-family
experience, who currently own one or more properties or at least have two years of historical ownership experience. Moving on to HUD’s LEAN program, the L-E-A-N process is still proving to make HUD the absolute go to financing for Health Care which included Assisted Care, Nursing Homes, and even Hospitals.
Please be aware that SVN-BCP has secured exceptional Correspondent lending relationships. These include
Fannie, Freddie, and especially HUD loan executions. These relationships allow us to offer identical loan terms as those that could be obtained by going direct to competing agency lenders. In essence, we stand on an absolute level playing field. SVN-BCP also has the ability to build 3rd party costs and fees into the interest rate spread thereby offering a borrower a lower out of pocket loan.
Sperry Van Ness International has specialist in all disciplines of commercial real estate. Members of the Sperry Van Ness Multi Family Team, Auction Team, Sale-Lease back, Asset Recovery and other teams are comprised of Commercial Real Estate brokers of the highest caliber. Neil Victor, CCIM is Senior Advisor with Sperry Van Ness Huntsville Office. Being part of the SVN organization allows us to help our clients make sound real estate decisions.
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