Everything You Need to Know About Small Multifamily Lending
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Ivan Kaufman shares with you everything you need to know about small multifamily lending. As a national direct lender that provides debt capital for the multifamily and commercial real estate industries, Arbor partnered with Fannie Mae to develop the first ever agency Small Balance Mortgage Loan program two decades ago. In this presentation you will what small multifamily loans are, how to find the right small balance loan to fit your needs, and more.
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Everything You Need to Know About Small Multifamily Lending
- 1. Everything You Need to Know About Small Multifamily Lending $1,000,000 to $5,000,000 Loans ARBOR.COM • 1.800.ARBOR.10
- 2. Today’s Speakers ARBOR.COM • 1.800.ARBOR.10 2 Dustin Pevear - Speaker VP, Operations & Processing Michael Noll – Speaker Originator Sales Associate Charles Ostroff — Moderator SVP, Chief Underwriter & Credit Officer
- 3. Arbor & Small Multifamily Loan Lending ARBOR.COM • 1.800.ARBOR.10 3 • As a national direct lender that provides debt capital for the multifamily and commercial real estate industries, Arbor partnered with Fannie Mae to develop the first ever agency Small Balance Mortgage Loan program two decades ago. • In 2015, we were one of a few select lenders asked to participate in Freddie Mac’s Small Balance Loan program. • Today, we are one of a select few lenders offering Freddie Mac and Fannie Mae small loans nationwide.
- 4. What is a Small Multifamily Loan? ARBOR.COM • 1.800.ARBOR.10 4 Small balance multifamily lending has quadrupled since 2009 from $11.1B to $44.3B. Currently, the small balance market represents 65% of multifamily loans and 20% of overall multifamily volume. In 2013, for example, 46% of all multifamily loans were less than $5 million each. Fannie Mae Small Loan • Up to $3M Nationwide. Up to $5M in Strong Markets Freddie Mac Small Balance Loan (SBL) • Up to $5M Nationwide. Up to $7.5M in Top and Standard Markets (subject to affordability calculations) * Source: Chandan Economics, 2016 Key Stats*:
- 5. Finding the Right Small Balance Loan to Fit Your Needs
- 6. Arbor’s Most Active Small Loan Markets
- 7. Benefits of Small Multifamily Loans ARBOR.COM • 1.800.ARBOR.10 7 Non-Recourse Pre-Payment Flexibility Interest-Only Reduced Fees Expeditious Processing 1 2 5 4 3
- 8. Small Multifamily Loan Program Summaries 8 • IO (5, 7, 10 year) Interest Only – Full Leverage Options • Max LTV – ACQ/REFI • Min DSCR Maximum Leverage • Max LTV • Min DSCR Full Term Interest Only Fannie Mae Small Loan & Freddie Mac Small Balance Loan Options
- 9. Arbor & Fannie Mae Small Loan Case Study ARBOR.COM • 1.800.ARBOR.10 9 REFINANCE • 32 units in Buffalo, NY • $2.67 million loan • $1.4 million cash-out • 7/6 ARM Cash-out is used to pursue other real estate investments, recoup equity, and further improve real estate assets.
- 10. Arbor & Freddie Mac SBL Case Study - Oregon ARBOR.COM • 1.800.ARBOR.10 10 REFINANCE • 42 units in Portland, OR • $3 million loan • $1.5 million cash-out • 5-year hybrid ARM • 1-year interest-only PURCHASE 1 • 22 units in Portland, OR • $1.3 million • 7-year hybrid ARM • 2 years interest-only PURCHASE 2 • 20 units in Portland, OR • $1.3 million • 5-year hybrid ARM • 1 year interest-only PURCHASE 3 • 26 units in Portland, OR • $1.3 million • 7-year hybrid ARM • 2 years interest-only
- 11. Where to Begin…
- 12. Checklist for Getting Started ARBOR.COM • 1.800.ARBOR.10 12 Rent Roll Historical Operating Statements Financial Statements Real Estate-Owned (REO) Schedule Property Details Purchase & Sale Agreement (ACQ) Cost Basis/Length of Ownership (REFI)
- 13. Technology in the Small Multifamily Loan Space
- 14. Meet ALEX (Arbor LoanExpress) ARBOR.COM • 1.800.ARBOR.10 14 The commercial real estate industry’s first agency online lending platform for brokers, borrowers, and correspondent lenders.
- 15. The Four-Step ALEX Process ARBOR.COM • 1.800.ARBOR.10 15
- 16. ALEX Takes the Guesswork out of Processing ARBOR.COM • 1.800.ARBOR.10 16
- 17. Benefits of ALEX ARBOR.COM • 1.800.ARBOR.10 17 Faster Loan Evaluation Accessible & User Friendly E-Signature Streamlined Documentation Real-Time Diligence Tracking
- 18. Audience Q & A Dustin Pevear - Speaker VP, Operations & Processing Michael Noll – Speaker Originator Sales Associate Charles Ostroff — Moderator SVP, Chief Underwriter & Credit Officer The floor is open to submit questions in the ‘Questions’ tab of your control panel. ARBOR.COM • 1.800.ARBOR.10 18
- 19. Small Multifamily Loan Research ARBOR.COM • 1.800.ARBOR.10 19 For the latest on the small balance landscape, be sure to download our Q2 2016 Small Balance Multifamily Investment Trends Report. www.ArborLoanExpress.com/2Q16MultifamilyInvestmentTrends
- 20. Stay Informed with ALEX Chatter ARBOR.COM • 1.800.ARBOR.10 20 For the leading source of small multifamily news, research and insight, visit ALEX Chatter. ArborLoanExpress.com/chatter
- 21. Thank You – Let’s Stay in Touch ARBOR.COM • 1.800.ARBOR.10 21 Thank you for joining us today. This concludes our webinar. Didn’t get to your question? Let’s get in touch. You can email us at email@arbor.com Have any financing questions? Speak to a loan officer one-on-one Want to learn more about Arbor? Visit Arbor.com (844) 253-9397 or visit Arborloanexpress.com Arbor.com
Notas do Editor
- Charles: Good afternoon everyone. My name is Charles Ostroff, and I’m the Chief Underwriting and Credit Officer here at Arbor. I’ll be moderating today’s webinar, “Everything You Need to Know About Small Multifamily Lending”, but before I introduce our speakers, a few housekeeping items. First, this webinar is being recorded, and the recording will be emailed to all attendees later this week. We will also have time for a quick Q&A after the presentation, so please submit any questions you have in the ‘Questions’ tab of your webinar control panel at any point during the presentation. If we are unable to get to your question, just give us a call or shoot us an email. Let’s get started.
- Charles: I’d now like to introduce our speakers. Dustin Pevear is VP of Operations & Processing and has been with Arbor since 2008. Thanks for joining Dustin. Michael Noll, an Originator Sales Associate, joined Arbor in 2014. Welcome Mike.
- Charles: Introduces Arbor and our expertise in Small Multifamily Lending.
- Charles: So that’s a bit of an overview on our history in the small loan space. Dustin, can you introduce our two primary Small Loan programs? Dustin: Covers Fannie Mae’s Small Loan and Freddie Mac’s Small Balance Loan programs.
- Dustin: Both programs are flexible and can be tailored to meet your specific financing needs. Let’s now take a closer look at how and where you can best use these programs to get the best terms.
- Dustin While we have closed Small Loans in nearly every state, the dark shaded states represent our most active markets. We will be covering a case study in Buffalo and Portland in a few slides, so these loan programs do work in an extremely diverse array of metro areas. Gives insight on the different market tiers, and the terms they impact.
- Dustin: So why would you look at a Fannie or Freddie small loan over a bank? Covers non-recourse Mike: Jumps in to cover pre-payment flexibility Dustin: Interest-Only Competitive Terms Reduced Fees Mike: - Jumps back in to cover Expeditious Processing. With Arbor’s new ALEX processing and loan application portal – which ill expand on in a bit – the process becomes borrower driven. Arbor is a high-volume shop, and this is a high-volume product. We have developed ALEX technology to become extremely efficient — but of course we have the staff to guide borrowers through the process.
- Dustin: Just a quick look at some of the flexibility here. We’ll see how two borrowers implemented financing on the next slides. Mike: And just to chime in, from speaking with borrowers, some terms that are particular popular at this point in the cycle are: X and Y.
- Dustin: Covers case study.
- Dustin: Covers case study. Points out that Purchase 2 shows how a borrower can tailor financing based on their investment goals/hold period.
- Charles: Mike, you are on the front lines every day with borrowers. The Agency loan process can be a bit daunting for first timers, but why don’t you walk them through what they’ll need to bring to the table for the quickest financing process.
- Mike: Sure. Thanks, Dustin. Yes, how to get started is one of the most frequent questions I get here. You are in a good position to move through the process quickly if you have the following on hand. (Goes through list, giving a bit of insight on each.) Rent Roll — Nice, organized and typed out. Include concessions and vouchers if possible. Historical Operating Statements — Explain what a T12 is and the level of detail underwriting is looking for. REO Schedule — Briefly touch on experience requirements here, and give a few examples of how an inexperienced borrower can partner with a experienced KP for financing. Location requirements, etc. This will be more in depth in the Q&A.
- Mike: Anyone with a TV or radio has surely heard the Quicken Loan commercials for their Rocket Mortgage platform. There has been a major push to streamline loan processes on the consumer/residential side of the business, but commercial real estate has generally been slow to adopt technology. Arbor had made a concerted effort to position itself at the forefront of technological innovation within the commercial real estate industry. In fact, we were the first all agency lender to create an online platform with something called Arbor Loan Express — or ALEX for short.
- Mike: In February we launched ALEX to the public — it’s the first online agency lending platform for multifamily borrowers. Here we see the landing page, where you can get started by requesting a quote. There is live chat during business hours to connect instantly with a loan officer — if you visit the chat feature on a Tuesday (?) you’ll likely reach me. Borrowers can simply enter their loan amount and whether they are looking for to acquire or refinance a property. Next there is the option to either upload a package or fill out an application online. If you submit during business hours, you will hear from an Arbor loan officer within 3 hours or less regarding the viability of a loan.
- Mike: Once a loan officer confirms the viability of a loan, borrowers submit an official application for approval — the form can be e-signed, as one of the main reasons for developing ALEX was to eliminate the need to print, sign, scan and email documents. After an application is approved, we move into the processing stage. This is where ALEX truly shines, as users will be able to upload e-signed documents and see exactly what steps need to be taken next to keep things moving along. Our new communication center will alert users with an email if there are any missing documents or if there is a question from underwriting staff. This next slide gives you an idea of how ALEX can keep you organized.
- Mike: So one of the major pain points for man borrowers, including first time agency borrowers, is that there is a fair amount of paperwork required. With ALEX, we’ve leveraged our expertise in the small lending space to streamline the process and create complete transparency every step of the way to keep the borrowers completely informed. But its not just borrowers that can benefit from using ALEX. Mortgage brokers have said that ALEX is easy to navigate, easy to upload documents, provides a better grasp of the status of the overall loan packet and helps facilitate better communication with clients.
- Mike: So, here is a quick recap of the major benefits of ALEX over the old fashioned way, ALEX provides faster loan evaluation, an accessible and user-friendly environment… And with that, I’ll pass it back to Charles, who will lead us through the Q&A.
- Charles: Thank you Mike and Dustin. We’ve had a lot of questions come in over the course of the webinar, and we’ll try to get to as many as possible while on track with time. If we don’t get to you question today, you can send an email to email@arbor.com with Webinar Question in the headline, and one of use will get right back to you. Alternative, you can always call (844) 253-9397 to reach our originations staff. Ok. First question: 1. Are there any loan term trends you are seeing? Is there a general ratio between groups obtaining fixed-rate or ARM loans? (Dustin and Mike to tag team this question). — Majority of the deals are fixed-rate — But, the new Freddie Hybrid ARM is also attractive as it reduces one’s balloon/refi risk — Traditional ARM loans are not offered under Freddie SBL, but Fannie Mae does offer a 7/6 ARM product, which we saw in the Buffalo case study — For longer term fixed-rate financing, Fannie will allow up to 30 years fixed, while Freddie’s longest term is a 10 hybrid (10 fixed; 10 floating). 2. You mentioned ‘experience requirements’. I’m looking to invest in my first multifamily property. Will I be eligible for a loan? Dustin: I’ll take this one. —First time MF borrowers are eligible for Agency loans, but professional 3rd-party management is crucial. —Agencies typically want to see the sponsor live with 100 miles of asset if they are a first time MF investor. — Sometimes we see a NYC-based sponsor, with say, 20 units in the Bronx, and they are looking to branch out into new markets in different states and acquire larger properties. In these scenarios we need to firmly understand the business plan and look to establish a comfort level with a 3rd party manager. 3. Is the ALEX system aimed at eliminating brokers? No, in fact 70% of users are brokers, etc. Charles: (Once we are nearing the allotted time limit, Charles will announce we have time for one last question. This can be a seeded or audience question depending on time/how applicable audience questions are.)
- Charles: While we weren’t able to get to all questions today — I know some were in regards to market fundamentals — I’d like to direct you all to our quarterly research series on the small multifamily market. Our quarterly “Small Balance Multifamily Investment Trends Reports” are produced in conjunction with Chandan Economics, and examine trends and movement in Cap Rates, LTVs, DSCRs and Origination Volume. You can find the report at the address below, but will also include a link in a follow-up email.
- Charles: If you’re looking for more insights on the small multifamily market, we’ve also got a great blog called ALEX Chatter with news, research and insight on the sector. It’s at ArborLoanExpress.com/Chatter
- Charles: And finally, if you’d like to get in touch with a loan officer at Arbor gives us a call at (844) 253-9397. If we weren’t able to answer your question today, you can send them to email@arbor.com with ‘Webinar Q&A’ in the headline and you’ll get a response from one of us. Thank you for tuning in to our webinar Everything You Need to Know About Small Multifamily Lending. This concludes our presentation.