Financial Compound is skilled to handle all of your apartment loan needs. Many borrowers choose long-term fixed rate apartment loans that are provided by the agencies, including fnma, freddie-mac, and HUD. The agencies work through Designated Underwriter and Servicer, “DUS” originators, which is a group of approximately 40 lenders and mortgage bankers authorized to fund these types of loans.
Interestingly, although the agency guidelines are the same for all of the DUS originators, we have found in our experience that each DUS originator has its own approach and risk profile with agency lending. Foremost, the DUS originators are involved in risk sharing with the agencies and typically hold the riskiest pieces of the loans in their own portfolios. This results in DUS originators taking different approaches and risk tolerances for the same transaction.
There are a variety of other types of loan structures for apartments aside from agency loans. Sometimes an apartment property is in need of renovation and a short term bridge loan is more suitable. The apartment bridge financing allows the borrower to perform capital upgrades to the units (such as new carpet, new paint, new appliances and flooring) and increase and stabilize the property’s cash flow. Once the apartment cash flow is maximized, that may be a more appropriate time to roll into a long-term fixed-rate apartment loan.
In addition to agency loans for stabilized apartment properties, portfolio lenders should not be overlooked. A proficient commercial mortgage broker such as Financial Compound can guide you to the right loan product. At times, portfolio lenders offer the most favorable terms for borrowers, including 85% LTV, and 1.05 DCR. Lenders have often thought of apartments as one of the safest property types to lend against. Re-tenanting is relatively easy and inexpensive compared to, for example, highly specialized medical office space. Furthermore, in many parts of the U.S. where home ownership is not affordable, the apartment markets remain a viable and vital part of the economy.
With most apartment loans, the lenders will underwrite a market vacancy, management fee, and reserves calculated on a per unit basis. Manger occupied units will typically be removed from the count of rental collection. Furthermore, some apartment loans today exhibit creative strategies by the borrowers to enhance property cash flow, including ancillary services such as providing high speed internet and phone service to the tenants for a nominal fee, as well as laundry and vending income. Some apartment loans benefit from RUBS, which is a process whereby the apartment owner charges the tenants their pro-rata share for certain services like water and electricity.