Loan Terms

I’d like to get everyone to chime in on what loan terms they are seeing today in the market for the different property types you or your company is getting a mortgage on.

Interest rate? IO or fixed?

Index: LIBOR? Prime? 10Y treasury?

Are there any particular or interesting terms to look out for or take advantage of today with the speculation of interest rates going down? Is now a good time to get into IY swaps?

Also - is the 10 year treasury way more favorable index for the borrower than the prime rate? If everyone can give their 2 cents. Thanks.

 

This doesn't really have to do with deal size or amortization. The only way it has to do with term is that you match up the term of the floor and cap with the term of the loan facility.

The cap works by having the borrower pay an amount upfront. That upfront fee buys the borrower protection, through payments from the originator of the cap if the interest rate goes above X. It's as simple as you pay a fee so that your interest rate risk is capped at a specified number.

By selling a floor, the borrower receives a payment upfront. Receiving cash sets a limit, Y, which is the lowest the borrower's interest rate can go.

This reduces the range of interest rates under the facility to Y-X. It is also free to do this because you can match up the cap and floor that cost the same amount.

 

IO 3M Libor with ~500 bps is a common one I've seen for my industry, but it's niche-specific so it's all relative.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.
 

We predominantly invest LP equity in student housing, market-rate multifamily, and seniors ground-up development. Floating construction loan quotes @ 65% leverage ranging from L+200 to L+230 with 3+1+1 term (sometimes get 4 year base term).

1.20 - 1.35x minimum DSCR to exercise extension option. A few non-recourse quotes but mostly partial recourse with burn-off. Stepdown pre-payment penalty during base term with no pre-payment penalty during extension. 50 bps commitment fee with 10 bps extension fees.

 

There are a number of important pieces of information to consider when reviewing loan terms. Reading through a loan agreement can take a little time, especially for a more complicated loan, such as a mortgage.

 
Most Helpful

Amid rising short-term rates and a pending recession, it has become evident that the debt market is changing rapidly.  For the past several months, bridge loans have been the dominant structure with low rates and higher leverage.  However, that seems to be changing.  We are seeing bridge spreads widen significantly and many bridge lenders have largely pulled out of the market.  And with SOFR expected to exceed 3.25% by year-end, most bridge loans will have rates approaching 7% (or higher) in the near future.

By contrast, full-leverage Agency fixed rates have stabilized in the 4.75% to 5.25% range, depending on the amount of affordability at the property.  Both Fannie and Freddie have implemented some underwriting changes to try to push loan proceeds higher – either with extended amortization periods or lower DSCR requirements – for deals with significant affordability at 80% of AMI. 

Additionally, Agency floating rate spreads remain in the low 200s for deals where prepayment flexibility is of utmost importance. The cost of SOFR caps has increased and will be a more significant cost in that equation.  We are definitely seeing increased demand for floating rate loans primarily because of the desire for prepayment flexibility.

As we prepare for the normal end-of-year run, Agency financing will continue to be a stable and important option for multifamily finance.

 

Anyone  know which banks are giving out loans?

The bank debt is the only way to wean off the crazy debt fund execution we saw over the past year.

It feels like the leverage hangover is in full effect, big bridge lenders cant get stuff off their books and are offering crazy high spreads to average out their package offerings to maybe one day be able to package it up and sell it.

 

Most of our lenders still have plenty of appetite. All terms still available, IO, Non Recourse, etc. Rates are just higher than what we've been used to, Mid 4's to 5's for most deals right now and we expect them to continue to rise. We saw margins compress for a brief period as treasuries spiked and lenders tried to compete, but things seem to have mostly normalized. With that said, volume has definitely dropped significantly

 

Recognize this is an old post but here's what we're seeing in July 2022 for permanent financing for Class A multifamily.

Interest rate: Very hard to get IO now. Most banks are pushing back on it. 2 loans we converted to permanent in summer 2021 got IO no issue, environment has changed.

Index: 10 Year Treasury

Interesting Terms: One we've heard recently is "we can't do IO, but we could look at doing a 35 yr. amortization" 5 years over the traditional 30 year AM. 1.25 debt cover is standard. 

10 Yr. Vs Prime: Don't tend to have the option to use prime. In today's inflationary environment, the 10 Yr. treasury is definitely an advantage, shelters more from the increase in short term rates. 

 

This can include the loan’s repayment period, the interest rate and associated fees, penalty fees borrowers might be charged, and any other special conditions that may apply.

 

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