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I doubt Freddie Mac would allow junior liens on its multifamily loans. I underwrote maybe 30-40 Freddie Mac deals in 2008 and 2009 and don't recall ever seeing a deal with subordinate debt. But who knows what's happened in the years since then? Debt financing is ridiculous right now.
Where can I do some reading up about this sort of topic?
No idea. Been out of that biz for a while now. I would read up on it on Fannie and Freddie's websites. Maybe checkout Novoco.com, which covers multifamily stuff.
Haven't done one with Freddie but did one with Fannie last year (roughly $4mm to go from 55% --> 65% LTV); fixed at 7YR Treasury + 325 bps; 1% prepayment premium on remaining principal
Ya know what, this just jogged my memory. Pretty much every deal I saw at FRE was at maximum leverage (70-85% LTV) so there really was no reason for these guys to take on subordinate debt when Freddie Mac was offering ridiculous senior debt loan terms and rates. So we very well could have approved junior liens in theory, but I never saw it play out in practice.
Agree with DCD on this. If they are going agency, they are likely around max leverage anyways in my experience. With market conditions the way they are now, if you really needed mezz, you probably have to go CMBS with a mezz piece. Right now CMBS is fairly competitive on pricing and leverage with GSEs.
Agree with tsingle. Could go pref equity if YM is too high, but again you need approval
Agree with posts above, read your loan docs because I don't believe Freddie allows mezz behind their loans. You may be able to put preferred equity behind it but I believe it cannot be what they call 'hard preferred equity' which is equity that requires a fixed payment amount on a fixed date (i.e. scheduled interest payments).
Freddie will allow hard pref equity, subject to their approval. An example would be Riverbanc, who is a large b-piece buyer of FM K pools, but also provides pref equity. They will take a deal up to 90% of the stack with around 9-10% current pay and 12% accrual.
Also, it is important for anyone working with Freddie to realize how aggressive they are being this year. They are calling it "the year of the waiver" and their hot phrase is "smart aggressive," all this to say they are willing to make exceptions to get the deal volume they need! Scary business!
Above post is spot on.
Freddie will only allow sub-debt in the form of preferred equity with very limited rights. They definitely do not allow traditional mezz.
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