Freddie Mac Revolving Credit Facility
Freddie Mac Revolving Credit Facilities provide a non-recourse, incredibly flexible form of financing for large-scale investors.
Freddie Mac’s Flexible, Non-Recourse Lines of Credit for Real Estate Developers and Multifamily Investors
For investors and developers who manage a large portfolio of multifamily properties, taking out an individual loan for each property may not be the most efficient use of time or resources. As luck would have it, Freddie Mac offers a solution in the form of the revolving credit facility, which is basically a line of credit for multifamily investments. The Freddie Mac Revolving Credit Facility is a non-recourse, incredibly flexible form of financing for large-scale investors.
There are many benefits to the revolving credit facility structure, for example, cross-collateralized and cross-defaulted Credit Facilities have no LTV or DSCR requirements on a property basis, as these figures are only examined on the basis of the Credit Facility as a whole. Investors are allowed to finance a variety of different kinds of properties, including Conventional multifamily developments, Seniors Housing, Targeted Affordable Housing developments, and Manufactured Housing Communities (MHCs), all while being able to move properties in and out of the Credit Facility without substituting other properties. Freddie Mac Revolving Credit Facilities have a preferred initial commitment minimum of $100 million (though this is negotiable) and allow up to 50% of that amount in financing expansion.
Sample Freddie Mac Terms For Revolving Credit Facilities
Size: $100 million preferred minimum, up to 50% of commitment amount in expansion rights (i.e. $150 million maximum)
Use: Financing large portfolios of multifamily properties
Terms: 5-year interest-only loans, two 1-year extension options
Interest Rates: Typically tied to the 1-month or 3-month LIBOR. Interest rate spreads locked for the life of the facility.
Interest-Rate Cap: Not required, but can be purchased through a third-party
Maximum LTV: Typically between 55% and 70%
Minimum DSCR:
DSCR requirements are determined by product type:
- Conventional Multifamily: 1.45x
- Manufactured Housing Communities: 1.50x
- Seniors Assisted Living: 1.60x
- Seniors Independent Living: 1.50x
- Seniors with Skilled Nursing Facility: 1.65x
- Student Housing: 1.50x
- Targeted Affordable Housing: 1.40x
- Uncrossed pools: +0.10
- Freddie Mac Refinancing: If refinancing with a securitized Freddie Mac loan, the asset release fee is waived
- Sales: 1% of the loan amount; waived if the new buyer uses a Freddie Mac securitized loan product
- Other releases:
- After year 3 of facility: 1% of the allocated loan amount
- Years 1 to 3 of facility: 2% of the allocated loan amount
- Very competitive interest rates
- Loans are interest-only
- Allows borrowers to lock in pricing before identifying properties
- Since assets are cross-collateralized and cross-defaulted, there are no LTV maximums or DSCR minimums at the property level, only at the credit facility level (though not all credit facilities are cross-collateralized and cross-defaulted)
- Can offer up to $150 million in financing through the life of the Credit Facility ($100 million initially)
- Common ownership is not required (thus allowing for different equity structures)
- Asset release fees are waived if a borrower refinances a product with a securitized Freddie Mac loan
- $50,000 extension fee for each year beyond 5 years (2 extensions allowed)
- Typically requires around $45,000 in legal costs
- Requires commitment fee of 5 basis points
- Requires property addition fee of 10 basis points
- An unused commitment fee of 20 basis points is charged each year on the difference between the commitment amount and the loan amount drawn
- Seasoning fee of 50 basis points charged each year for each property, beginning in the fourth year the property is being financed by the facility
- Asset release fees are also charged (information above)
- Other fees, including application fees, transaction fees, and mortgage review fees may also apply
Recourse: Non-recourse with standard “bad boy” carve-outs
Crossed Facilities: No LTV and DSCR requirements for individual properties, only for the entire credit facility. No minimum occupancy requirements.
Uncrossed Facilities: Properties must individually meet LTV and DSCR requirements. No minimum occupancy requirements.
Assumability: Not assumable
Asset Release Fee:
Advantages:
Disadvantages: