You can get the lowest rates, longer amortizations and make more money when you finance your multifamily properties through a Mortgage Banker providing CMBS Agency financing. Many investors think of going to their local community bank when they have a commercial loan, like an apartment building. The fact is that the community bank serves a valuable function in our national financial world. The local community bank knows their community and they develop programs to fit the need of the communities. As such they learn to be flexible in some areas of underwriting that present minimal risks in their communities and to be more stringent in areas of greater risk. This can be both good and bad. On the positive side the banks provide loans in there market that may not be done in other markets (sometimes in the same city). Negatively, like all mortgage lending only square pegs can go into square holes. If the need does not fit there is no loan. This is typically not a problem for multifamily properties with five or more units. The underwriting criteria is pretty uniform nationally. The big problem is resources. Local financial institutions have limited resources. In many areas there are apartment complexes yet the local lenders can not afford to finance them. Even many of the smaller complexes ranging in one to ten million dollars in value can not be financed because a small institution just do not have the resources to make these loans. The solution is a secondary market for commercial backed securities, specifically multifamily properties.
The Secondary Market
There are two ways that a secondary market for commercial mortgage backed securities (CBMS) are created. Large financial institutions like big banks, insurance and investment companies create, package and market CBMS on wall street. These programs are created to provide liquidity to the local banks and mortgage bankers, otherwise when they make a loan and lend out all of their money they can no longer originate new loans to create new income and the economy stops. The second way commercial mortgage backed securities are created is through the federally backed agencies of FNMA, FHLMC and to some extent FHA. Fannie Mae and Freddie Mac actually create “conventional guidelines”, purchase loans, and sell them on the secondary market. This provides liquidity to America’s Commercial Real Estate and Banking Industries. Otherwise, if a bank had $100 hundred million dollars to lend, once they made one $1 million dollar loans they would be out of business until those loans were repaid. If it was a community bank, they could not finance the $1 million dollar apartments in their communities because they may only have $10 million dollars to lend.
Advantages of Agency Loans for Multifamily Properties
Without going into much detail I will list the advantages to a commercial real estate investor to get an apartment loan based on agency guidelines.
- Lower Rates Greater Cash Flow
- Longer Amortizations Greater Cash Flow
- Less Need to Refinance Greater Cash Flow, Less Hassle
- Non Recourse Limit Personal Liability
These are just a few reasons savvy Real Estate Investors choose to invest in multifamily properties and get financed through a lender that provides agency financing versus local community bank financing (that often does not exist).