The Agencies Are Helping Multifamily Investors Survive Rate Volatility

Multifamily investors are facing interest rates rife with volatility. In some cases, interest rates have fluctuated in the range of 25 basis points between days. This level of uncertainty, among other factors, has hampered deal volume and reduced the number of active lenders in the market.

Yet multifamily investors are able to leverage programs from Fannie Mae and Freddie Mac on eligible deals. Programs from the agencies, which are already the two most prominent multifamily lenders, can help offset higher capital costs and provide investors with greater certainty as they price deals, notes Capital One SVPs of Agency Finance Kristen Croxton and Brad Waite.

The Agencies Provide a Lifeline

Fannie Mae and Freddie Mac have been able to offer competitive rates and support mission-driven loans—even as interest rates have increased—and both agencies have expanded their loan products to enhance borrowers’ access to funds. “They’ve been able to make their terms more attractive to borrowers, which certainly helps to move deals forward in this environment,” says Croxton. “Qualifying deals may benefit from lower interest rates, flexible underwriting and loan terms and ultimately, greater loan proceeds.”

Early rate lock programs are the most accessible options to mitigate interest rate volatility. Fannie Mae has the Streamlined Rate Lock program, while Freddie Mac offers an Index Lock program, both of which are aimed at eliminating the risk of rising interest rates during the underwriting process.

“We provided $42.2 million in Fannie Mae loans to refinance a portfolio of three multifamily assets in the Southeast,” says Waite. “In all three cases, we worked through Fannie Mae’s Streamlined Rate Lock program to rate lock prior to full re-stabilization and minimize the impact of rising interest rates.” The loan proceeds will allow the sponsor to continue to invest in improvements in the assets for years to come.

The agencies also offer lease-up programs, which allow investors to rate-lock and fund a loan in advance of stabilization. Capital One has utilized lease-up programs through both agencies to support borrowers and provide the best execution possible.

In a recent deal, Croxton and her team leveraged Freddie Mac’s Lease Up program for a $114 Freddie Mac loan to Fairfield, which was used to refinance Embark Apartments in Fremont, California. “Although Embark was nearing stabilized occupancy at the time of closing, we expected further growth post-close and were able to secure additional loan proceeds based on the as-stabilized operations,” Croxton says.

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