Bridge Loans for the Acquisition or Refinancing of Low-Income Housing Tax Credit-Eligible Properties Insured by Freddie Mac
Investors considering the acquisition or refinance of a property with expiring Low-Income Housing Tax Credits might agree that the Freddie Mac Bridge to Resyndication loan program is the best loan to get the job done. Acquiring or refinancing a property with expiring Low-Income Housing Tax Credits (LIHTCs) can sometimes be a challenge, but Freddie Mac’s Bridge to Resyndication loans provide effective short-term financing that helps properties position themselves for longer-term financing, which can facilitate the acquisition of new LIHTC credits. These loans have a term of 24-months and permit LTVs of up to 85%, DSCRs as low as 1.15x, and are interest-only. Additionally, the program supports eligible mixed-use properties and allows for one, 6-month loan extension (with lender approval).
2021 Sample Freddie Mac Terms For Bridge to Resyndication Loans
Size: Varies based on LTV and DSCR requirements.
Use: Preservation of affordable housing. Provides short-term financing to assist borrowers in the acquisition or refinance of Low-Income Housing Tax Credit (LIHTC) eligible properties.
Terms: 24-month loan with one 6-month extension (requires approval)
Interest Rate: Floating-rate, interest-only loan. Typically based on 1-month LIBOR.
Maximum LTV: 85%
Minimum DSCR: 1.15x
Eligible Borrowers: Developers with strong financial capacity who have successfully completed multiple resyndications using 4% LIHTCs and tax-exempt debt.
Eligible Properties:
- LIHTC properties at or nearing the end of their compliance period with LIHTC rents
- Good construction; may require some repairs (but repairs will not be completed during the loan period unless they are of a life-saving/emergency nature)
- Must demonstrate that a public agency has the ability to issue enough tax-exempt, Volume Cap Mortgage Revenue Bonds for the property, using a predictable process
- A loan agreement rider will include specific benchmarks, including future rehabilitation plans for the property, benchmark dates, bond inducement resolution, and a commitment from an LIHTC investor
Subordinate Debt: Must be fully amortizing. Hard subordinate debt requiring the repayment of principal is only allowed if issued by a public sector entity. For soft subordinate debt, payment cannot be more than 75% of available cash flow.
Cash Equity Requirement: 15% if the property has been owned less than 3 years
Occupancy Requirement: Minimum occupancy determined by using the comparable fixed-rate to achieve a 1.0x DSCR.
Advantages:
- Up to 85% LTV allowance
- Eligible mixed-use properties supported
- Loans are interest-only
- Subordinate debt allowed under certain circumstances
Disadvantages:
- Requires third-party reports including Phase I Environmental Assessment, Appraisal, and Physical Needs Assessment
- 2% potential breakage fee
- 2% exit fee (not charged if the loan is refinanced with another Freddie Mac loan product)
- Also typically requires a 2% rate lock fee (refunded when Freddie Mac purchases loan, typically 30 days after closing)