Freddie Mac Student Housing Value-Add Loan Highlights

• Negotiable, short-term financing for renovations of $10,000 to $25,000 per unit
• Able to meet a plethora of borrower term and structure needs
• Up to 75% of the budget may be spent on exterior work
• Up to a 20% variation in the budget allowed without additional approval
• Interest-only and uncapped floating-rate loan options available
• Eligible mixed-use properties supported

Freddie Mac Terms For Student Housing Value-Add Loan Sample Terms

Size: Varies based on LTV and DSCR requirements

Use: For the Acquisition or refinance of eligible Student Housing properties requiring moderate upgrades of $10,000 to $25,000 per unit

Terms: 3 years with one 12-month extension (borrower's request), and another optional 12-month extension (based on Freddie Mac discretion)

Interest Rates: Floating-rate interest-only loan

Interest-Rate Caps: Not required

Maximum LTV: Up to 85%

Minimum DSCR: 1.20x

Recourse: Non-recourse with standard “bad boy” carve-outs

Eligible Borrowers: Must have experience owning and operating similar Student Housing developments. Guarantors must have 1.5x the standard liquidity/net worth requirements.

Eligible Properties:

• Properties must have no more than 250 units or 625 beds
• Eligible properties are high-quality and only require light renovation
• REO (real-estate owned) properties in receivership or properties performing below market averages (especially those requiring improved management) are also eligible
• The school must have at least 15,000 minimum enrollment
• Properties must be located within 2 miles of campus, with easy access to campus via walking or public transportation

Other Rehab Requirements:

• Renovation must start within 90 days of origination and must be complete within 33 months
• Planned upgrades must be between $10,000 and $25,000 per unit or $4,000 to $10,000 a bed
• At least 25% and up to 50% of the budget can be spent on unit interiors

Refinancing Test: Not required

Assumability: Not assumable

Prepayment Penalty: The loan can be paid off at any time with a 1% penalty. No penalty if the loan is refinanced with Freddie Mac.

Advantages:

• Budget can be increased up to 20% without approval
• Up to 75% of funds can be spent on exteriors
• Eligible mixed-use properties supported
• No refinancing test required

Disadvantages:

• The appraisal must include as-stabilized values
• Replacement reserves are generally required
• Loans are not assumable
• Additional rehabilitation escrow or completion guaranty required
• Application fee and good faith deposit also required

Freddie Mac Student Housing Value-Add Loan Term Breakdown

• Three years with a single 12-month extension at the borrower’s request, and an optional 12-month extension at Freddie Mac’s discretion
• Adjustable-rate loan with full-term interest-only; no interest rate cap required
• No payment lockout; the borrower is allowed to pay off the loan at any time, but early repayment requires an exit fee of 1%; the exit fee is waived if the loan is refinanced through Freddie Mac
• Acquisitions and refinances; the loan is not assumable
• Loan documentation at origination includes the Value-Add Rider rider, which details the terms/requirements of the rehabilitation of the property
• Escrows include taxes, insurance, replacement reserves, and Priority Repairs. A three-month debt service escrow is required during the renovation phase. Once the DSCR reaches 1.25x or higher, then the following conditions activate escrow release: Completion of 40% of the renovation work allows 50% of the escrow to be released. Completion of 80% of the renovation work allows the remaining amount of escrow may be released.
• For longer-term ownership, there is a cash-out option available provided a completion guaranty on budgeted improvements at least equal to the cashout in place
In this article:
1. Non-Recourse Loans for the Light Renovation of Student Housing Developments
2. Freddie Mac Student Housing Value-Add Loan Highlights
3. Freddie Mac Terms For Student Housing Value-Add Loan Sample Terms
4. Freddie Mac Student Housing Value-Add Loan Term Breakdown
5. Get Financing