Janover Ventures Closes Fannie Mae Small Loan

$1.79 Million Loan Closed for 63-Unit Apartment Property in Hiawatha, Iowa

Last week, Janover Ventures' Camilo Padron closed a $1.79 million Fannie Mae Small Loan for Clarke Street Apartments, a 63-unit apartment property located in Hiawatha, Iowa. I sat down with him to discuss the deal, the Fannie Mae Small Loan program, and what borrowers should know about the current state of the small-balance multifamily market.

This deal was an ideal fit for the Fannie Mae Small Loan program, for several reasons. First, the property was located in a tertiary market; second, it was well within the size constraints of the program ($1 million to $6 million), and third, the borrower was looking for longer-term financing, which can be difficult to find in today's market.

What made this deal special or unique?

For this deal (which was an acquisition), our borrower decided to go with Fannie Mae financing. He chose Fannie because they offered the most aggressive terms for this particular market. This deal was particularly interesting because our borrower wanted a long-term fixed-rate loan, but also something that would give him significant flexibility to either sell the property or pay off the mortgage later. For that reason, he decided to get a 15-year fixed-rate loan with a 30-year amortization. That way, he could take stock of his situation a few years down the road and make the decision that was best for his and his family's needs.

How was the application and approval process for the borrower?

Fortunately, the application process went super smoothly. We told our borrower upfront what all the requirements were, and he and his property were a great fit for the program. It was also a very smooth process in terms of being approved for the loan.

What were the terms and size of the loan?

We were able to arrange a $1.79 million, 15-year fixed-rate loan with a 30-year amortization for our borrower. The interest rate was approximately 4.39%, which was quite competitive. Like nearly all Fannie Mae multifamily deals, this loan was non-recourse, which means that (in general) the lender can't go after the borrower's personal property if they default on their loan. The LTV was 80%, and the loan offered yield maintenance as a prepayment option.

Was this transaction similar or different from the average Fannie Small Loan deal?

It was pretty similar, as it was a very straightforward deal.

What are the benefits of the Fannie Mae Small Loan program for borrowers? Is it a popular program?

It's quite popular for a specific type of multifamily borrower, particularly one looking to acquire or refinance property in a secondary or tertiary market. In larger markets, however, Freddie's SBL program can often be a better choice. Both Fannie and Freddie Small Loans offer a variety of fixed and floating-rate terms, as well as certain interest-only (I/O) financing options. However, only Fannie offers fully-amortizing 30-year loans, which can be an excellent option for some borrowers.

For those who aren't familiar with the Fannie Small Loan program, some of the features and requirements include:

80% Max. LTV
1.25x Min. DSCR
Up to 30-year amortizations
5- 30-year fixed-rate terms
Interest-only (I/O) options available
45-75 day close
680+ credit score typically required (some flexibility)
Non-recourse (with standard bad-boy carve-outs)

What else can you tell us about the small balance multifamily lending market? Are there any updates borrowers should know about?

Well, there's a lot of great news, as well as some not-so-great news as well. About two months ago, borrowers and lenders were pretty concerned, as Fannie and Freddie drastically raised their rates and practically left the market. Fortunately, on Sept. 13, the FHFA, which oversees Fannie Mae and Freddie Mac, recently increased the agencies' loan caps to $100 billion each for the next five quarters (Q4 2019 to Q4 2020). The agency landscape is still a little different, but things are looking much better than they were.

On another positive note, Freddie Mac just announced a new 20 bps (0.2%) rate cut. While, as I mentioned, Freddie is mainly focused on top and standard markets, this could tip the scales in their favor for certain loans. In comparison, Fannie is still getting back into the game again, so they're not really incentivizing a big rate cut when compared to Freddie.

However, for certain borrowers, including those with a low net worth or credit issues, agency financing may not be a viable option. In these circumstances, we typically recommend CMBS (Fannie and Freddie usually want borrowers to have a net worth of 100% of the loan amount, not including retirement accounts). In contrast, for well-qualified, rate-conscious borrowers, (who can afford to wait through a longer approval process), a HUD/FHA multifamily loan could be a great choice.