Janover Ventures' Brandon Ramineh Closes Fannie Mae Small Loan

$870,000 Loan Closed for 10-Unit Apartment Property in Kansas City, Kansas

Last week, Janover Ventures' Brandon Ramineh closed an $870,000 Fannie Mae Small Loan for Pearl Street Apartments, a 10-unit apartment property located in Kansas City, Kansas. I sat down with him to discuss the deal, the Fannie Mae Small Loan program, and what borrowers should appreciate about the current state of the small-balance multifamily market.

Fannie Mae Small Loans are ideal for multifamily properties in secondary and tertiary markets, like Kansas City. In these markets, they generally offer lower rates than banks, conduits, or even Freddie Mac.

What made this deal special or unique?

The first thing that made this deal unique is that when it comes to agency debt, this was a pretty small deal. In the current Fannie Mae market, it's very hard to get sub-$1 million deals unless you have a large portfolio. Plus, even though this wasn't a major market deal, we were still able to get 80% LTV. Getting that amount of leverage, on a refinance, under these circumstances, is very difficult to do.

Even though this was a refinance, we actually treated it as a purchase. The client had recently purchased the property with a hard money loan in order to guarantee a quick closing. Then, the client refinanced that hard money loan with agency debt in order to get a better rate.

How was the application and approval process for the borrower?

The application and approval process went about as perfectly as it could have gone. It took about 75 days to close, and the process was super smooth. Fortunately, our borrower's package was very well-organized, which made things a lot easier. However, we did have had to go into Fannie Mae to get approved for 80% LTV, which is why it took 75 days. However, when we did get approval, it was pretty smooth sailing from there.

What were the terms and size of the loan?

We were able to arrange an $870,000, 12-year fixed-rate loan with a 30-year amortization for our borrower. The loan was at 80% LTV, which, as I mentioned, was quite an accomplishment for us with a loan of this size. The interest rate was 3.8%, which is quite reasonable for the market and property type. As with most Fannie Mae multifamily loans, 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 loan had a prepayment option of yield maintenance for 11.5 years.

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

Like I mentioned earlier, it was much smaller than our average deal. Plus, we were able to obtain higher leverage on the refinance due to the recent purchase of the property.

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

Fannie Mae Small Loans have many upsides, so they’re quite popular for certain types of borrowers. One of the biggest benefits is the fact that this program offers great pricing in smaller markets (like Kansas City, where our borrower's property was located). Plus, these loans also allow for terms and amortizations up to 30 years.

The most important terms of Fannie's Small Loan program include:

LTVs up to 80%
30-year amortizations
A variety of fixed-rate terms up to 30 years
Interest-only (I/O) options available
Closings between 45-75 days
Non-recourse (with standard bad boy carve-outs)

One important aspect of the program (which can be a benefit or drawback, depending on the situation) is that the borrower's rate does not get locked until commitment (a week or so prior to closing). For instance, if we issue an application at 4%, and rates go up, it may not be ideal for the borrower. However, for this loan, the interest rate at the initial application was set at 4.12%, but since interest rates fell, the loan closed at 3.8%, which was a huge break once we got closer to the finish line.

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

About a month ago, the FHFA (Federal Housing Finance Administration), which oversees Fannie and Freddie, increased the agencies' loan caps to $100 billion each for the next five quarters (Q4 2019 to Q4 2020). This was great news and really set people's minds at ease. A few weeks before that, Fannie and Freddie increased rates and nearly pulled out of the market, which left a lot of borrowers and lenders worried about the future.

Another positive trend is that Freddie Mac recently dropped their rates. While Freddie generally prefers major market deals (so it isn't a good choice for everyone), in some circumstances, it's starting to become a more attractive option than Fannie.

Aside from agency debt, CMBS loan rates have also recently dropped quite a bit, making CMBS a fantastic choice for borrowers who don't quite fit in the agency "box." For highly-qualified borrowers (particularly those who can afford to wait through a longer closing), HUD/FHA multifamily loans also remain a great option.