Multifamily Finance Video Library

In the videos below, Janover Ventures CEO Blake Janover explains the essentials of multifamily real estate finance. In doing so, he reviews the most common types of multifamily financing, including Fannie Mae and Freddie Mac Multifamily loans, CMBS financing, FHA multifamily loans, life company loans, and more. He also explains core terms like non-recourse financing and DSCR, while describing the role of mezzanine debt and preferred equity in a commercial real estate borrower’s capital stack. In addition, he delves into topics including required borrower documentation for multifamily loans and the multifamily loan application process.

Understanding Your Multifamily Financing Options

Multifamily Loan Options

Multifamily borrowers have a wide variety of loan options; and, as Janover Ventures CEO Blake Janover explains, popular choices include bank loans, CMBS financing, life companies loans, and Fannie Mae, and Freddie Mac multifamily financing.

Meet Janover Ventures

Janover Ventures is a highly-experienced, hands-on, capital markets advisory firm with nearly two decades of expertise sourcing debt for multifamily and commercial properties across the United States. We believe that investors deserve to know all of their options— and we’re committed to educating and empowering them.

Multifamily and Commercial Financing Options

Today’s multifamily lenders offer non-recourse,10-40 year fixed rate loans with leverage up to 80%. Why go back to your local bank for a commercial loan when the market is full of safer, better, and less expensive options?

Fannie Mae and Freddie Mac Multifamily Loans

Qualifying for Agency Debt

Fannie Mae and Freddie Mac multifamily loans have some of the best terms and lowest rates in the industry. To qualify for loans backed by these government sponsored enterprises (GSEs), principals generally are required to have combined net worth of more than than the loan amount, and liquidity greater than 10% (not including retirement accounts).

Fannie Mae DUS Loans

The Fannie Mae DUS loan may be the most flexible agency loan on the market today. Since DUS loans offer lenders more control over the underwriting process, some lenders are issuing DUS financing in amounts as low as $750,000. In addition, the DUS loan program offers both fixed and adjustable rate financing, as well as interest only loan options.

Fannie Mae Small Balance Loans

Fannie Mae Small Balance Loans are one of the best financing options for multifamily properties, especially in secondary and tertiary markets. These loans offer 30-year, fixed rate fully amortizing loan terms starting at just $1 million. Plus, the Fannie Mae Small Balance Loan program offers leverage up to 80% with a variety of fixed and variable rate financing options.

Freddie Mac SBL/Optigo

The Freddie Mac SBL/Optigo is designed for smaller multifamily properties in major markets. The program, which offers loans between $1 million and $7.5 million, was recently rebranded, and is now called Freddie Mac Optigo.

HUD/FHA Multifamily Financing, CMBS, and Mezzanine Loans

HUD/FHA 223(f) Loans

HUD/FHA 223(f) financing is designed for the acquisition and refinancing of multifamily properties. It offers highly competitive interest rates, leverage up to 85% for market-rate properties, and fixed and fully amortizing loan terms up to 35 years.

HUD 221(d)(4) Multifamily Construction Loans

The HUD 221(d)(4) loan for multifamily construction and rehabilitation is an incredible opportunity for those who qualify. It provides leverage up to 85% LTC and up to 40-year fixed and fully amortizing terms with an up to 3-year interest only construction period.

CMBS Loans

CMBS financing is non-recourse, offers up to 75% LTV for multifamily properties, and, unlike Fannie Mae and Freddie Mac loans, does not place significant emphasis on borrower net worth and liquidity. Despite these benefits, lender legal costs can get expensive, easily ranging between $30,000 - $40,000 for a $3 million to $4 million loan.

Mezzanine Loans

Mezzanine loans and preferred equity are typically much more expensive than senior debt, but can increase leverage for borrowers. The main difference between these two is collateral; mezzanine debt holds a claim on the property itself, while preferred equity holds shares in the borrowing entity.

Non-Recourse Financing, Prepayments, DSCR, and Managing Your Capital Stack

Non Recourse Commercial Financing and Carve Outs

If a borrower defaults on a non recourse loan, the lender cannot seek personal damages against the borrower. Non recourse loans, which are only available to qualified borrowers, typically come with standard carve outs, which make the loan full recourse if a borrower commits certain bad acts, like fraud.

Managing Your Commercial Real Estate Capital Stack

Well-designed capital stacks are designed to increase leverage while limiting costs. In some situations, borrowers may benefit from layering mezzanine debt or preferred equity on top of senior debt, while in other cases, a stretched senior loan is more ideal.

Multifamily and Commercial Loan Prepayment Penalties

Prepayment penalties for multifamily loans vary widely. CMBS loans typically come with defeasance, bank loans with swap agreements, while agency loans or certain life companies come wit yield maintenance. Other options include step downs and soft step downs.

DSCR: Debt Service Coverage Ratio for Multifamily Loans

DSCR, or Debt Service Coverage Ratio, is an essential metric in multifamily and commercial real estate finance. DSCR is an effective measure of a borrower’s ability to repay their debt, and can be calculated by dividing Net Operating Income (NOI) by a property’s annual debt service.

Multifamily Financing Application Fees, Deposits, and Documentation

Multifamily and Commercial Loan Application Fees and Deposits

Multifamily loan application fees often cover third-party reports like appraisals, environmental reports property, as well as legal costs and lender processing. While all multifamily loans require application fees, in general, borrowers should be careful to avoid sending application fees to unknown or disreputable lenders.

Multifamily Mortgage Documentation

Potential multifamily borrowers will need to provide several pieces of documentation in order to get an actionable quote. This includes a T12, a comprehensive rent roll, a first year P&L statement, and a PFS (personal financial statement), detailing a borrower’s net worth and liquidity.