Freddie Mac Lease-Up Financing

Loans for New, Pre-Stabilized Multifamily Properties Insured by Freddie Mac

FRMC Lease-Up financing

Getting a recently constructed or recently acquired property through the lease-up period can be significantly challenging. Coming to the aid of investors who must navigate this challenge, Freddie Mac has designed the Lease-Up Loan specifically to help investors succeed during this period. The Freddie Mac Lease-Up Loan is perfect for both the acquisition and refinancing of newly constructed multifamily properties.

Freddie Mac Lease-up loans come with many of the attractive terms that Freddie Mac loans are known for. The Lease-up loan can be fixed or variable rate, is nonrecourse, comes with a loan-to-value allowance of up to 75%, and even permits the financing of eligible mixed-use properties. The feature that sets it apart from other financing options, however, is the 12-month interest-only period, which is what makes them ideal for properties that don't yet have a strong stream of rental income.

Freddie Mac Lease-up Financing Sample Terms

  • Size: Varies based on debt service and leverage
  • Use: Purchases and refinances of new multifamily construction
  • Terms: 5-10 years (Terms can go up to 30 years for non-securitized loans)
  • Amortization: Up to 30 years, optional I/O financing
  • Recourse: Non-recourse with standard carve-outs
  • Maximum LTV/Minimum DSCR:
    • Refinances:
      • Conventional and Targeted Affordable: 75%/1.30x
      • Seniors Housing with Independent Living: 70%/1.35x
      • Seniors Housing with Assisted Living: 70%/1.45x
    • Purchases:
      • Conventional and Targeted Affordable: 70%/1.30x
      • Seniors Housing with Independent Living: 70%/1.35x
      • Seniors Housing with Assisted Living: 70%/1.45x
  • Minimum Equity Required:
    • Refinances:
      • Conventional and Targeted Affordable: 15%
      • Seniors Housing Independent or Assisted Living: 20%
    • Purchases:
      • Conventional and Targeted Affordable: 25%
      • Seniors Housing Independent or Assisted Living: 25%
  • Prepayment Penalty: Borrowers may pay yield maintenance until the loan is securitized. After securitization, a 2-year lock-out period begins, after which borrowers may conduct defeasance. Borrowers can pay an additional upfront fee at closing to opt for yield maintenance. Pre-payment premiums are waived for the final 90 days of the loan.
  • Rate Lock: Rate locks issued when the property reaches:
    • 50% of unit occupancy
    • 60% of the units leased
    • 60%+ units have Certificates of Occupancy
  • Eligible Borrowers/Properties:
  • Closing Requirements:
    • Refinances:
      • 1.05x DSCR
      • 65% of units must be occupied
      • 75% of units must be leased
      • 100% of units must have Certificates of Occupancy issued (Conventional and Targeted Affordable)
      • 90% of units must have Certificates of Occupancy issued (Seniors Housing with Independent Living and/or Assisted Living)
      • Assisted Living properties must have all required licenses authorizing operations
    • Purchases:
      • 1.0x Debt Service Coverage Ratio
      • 65% current occupancy/75% of units currently leased
      • For Targeted Affordable or Conventional properties, all units must have a Certificate of Occupancy
      • For Seniors Housing (AL or IL), 90% of units must have a Certificate of Occupancy
      • Assisted Living (AL) developments need state licensing, insurance, and other necessary licensing and documentation
  • Lease-Up Credit Enhancements: Required
    • Lease-Up Credit Enhancement must be a minimum of:
      • 5% of the unpaid principal balance (UPB)
      • 10% of the unpaid principal balance (UPB) if the Lease-Up Credit Enhancement is a guaranty (other rules and conditions may also apply)
    • These funds will be released when the property reaches the appropriate DSCR (usually 1.25x) for a minimum of 90 days and is otherwise in compliance with Freddie Mac rules and regulations
    • If the debt service target cannot be met within 12 months, loan resizing will occur, with an associated recast of payments.
  • Advantages:
    • Loans are non-recourse
    • LTVs of up to 75% allowed
    • Eligible mixed-use properties supported
    • Permits borrowers to get a rate lock before a property has reached stabilization
    • Additional loan flexibility may be available on an individual basis, especially for premier sponsors and markets (Seniors Housing not eligible)
    • Some loans for premiere sponsors/markets may not require Lease-Up Credit Enhancement
  • Disadvantages:
    • Appraisals must include both the as-is and stabilized value of the property
    • Some lenders may not fund Seniors Housing Lease-Up Loans
    • Some lenders may mandate an up to 30% Cash Equity Requirement
    • Properties must be at least 90% occupied and achieve a 1.25x amortizing DSCR at stabilization (over a 3-month consecutive period)
    • Lease-Up Credit Enhancement required until properties reach the required amortizing DSCR (also typically 1.25x) for at least 3 months