Freddie Mac Value Add Loans For Modest Property Upgrades
“One-stop shopping” for upgrade and permanent financing
- Short-term, negotiable financing for upgrades of $10,000 to $25,000 per unit
- Allows for a wide variation in borrower term and structure needs.
- Up to 50% should be spent on unit interiors.
- Budget can be adjusted up to 20% without additional approval
Lower execution costs.
Interest-only and uncapped floating-rate loans available.
- Developers/operators with experience in multifamily property rehab in local market with sufficient financial capacity
- 1.5x standard minimum net worth and liquidity requirements for guarantors
Eligible Property Types
- Less than 500 total units in good locations
- Well-constructed properties requiring modest repairs
- Market laggards that require capital infusion and new/improved management
- Properties in receivership capable of improved performance
- Seniors housing, student housing and manufactured housing communities not eligible
- Maximum loan-to-purchase / loan-to-value (LTV) ratio: 85%
- Minimum amortizing debt coverage ratios (DCR): 1.10x – 1.15x depending on market
- Sizing based on 7-year note rate
- Appraisal includes as-is and as-stabilized values
- Underwriting must support 1.30x DCR and 75% LTV based on as-stabilized value supported by appraisal
- Standard Freddie Mac underwriting based on as-is income and expense
- Refinance Test not required
- No pro-forma underwriting of future performance
- Rehab must commence within 90 days of loan origination and completed within 33 months.
- Acceptable budget: $10,000 to $25,000 per unit
- Budget can be adjusted 20% without additional approval;
- 50% of budget must be spent on unit interiors.
- Completion Guaranty or rehab escrow required
- Borrower/Servicer reporting required
At Loan Maturity/Refinance
- Final engineer review of work completion and quality required
- Refinance with Freddie Mac with no exit fee; otherwise 1%
- Freddie Mac will re-underwrite loan according to then-current credit policy parameters
- One-year borrower extension for 0.5% extension fee assuming no default
- Additional Freddie Mac extension with 1% extension fee
Standard fees apply, including application fee and good faith deposit
- 3 years with one 12-month extension and one optional 12-month extension at Freddie Mac’s discretion
- Floating-rate loan interest-only; no cap required
- No lock-out; borrower may pay off loan any time with a 1% exit fee (waived if refinanced with Freddie Mac)
- Acquisitions and refinances
- Not assumable
- Loan docs include Value-Add Rider which details rehab terms/requirements
- Escrows: real estate taxes, insurance and replacement reserves
- 15% cash equity required
- For longer term ownership, cash-out available with completion guaranty