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General: 800.ARBOR.10

Home | Freddie Mac | Value-Add Loan
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FREDDIE MAC®

Value-Add Loan

• Offers short-term, cost-effective financing for modest property upgrades ($10,000 to $25,000 per unit)
• Enhanced to improve property financing for rehabilitation work
• Competitive pricing; lower execution costs
• Interest-only and uncapped floating-rate loan
• Non-recourse and “one-stop shopping” for upgrades and permanent financing

Terms
  • Three years with one 12-month extension based on the borrower’s request and one optional 12-month extension based on Freddie Mac’s discretion
  • Floating-rate loan with full-term interest-only; no cap required
  • Standard 12-month lock-out with option for longer or shorter lock out based on borrower’s preference; borrower may pay off the loan at any time after the expiration of the lock-out period but must remit an exit fee of 1%; the exit fee will be waived if the loan is refinanced with Freddie Mac
  • Acquisitions and refinances; not assumable
  • Loan documentation at origination will include the Value-Add Rider, which will detail the terms/requirements of the rehabilitation
  • Escrows will include real estate taxes, insurance, and replacement reserves
  • 15% cash equity generally required
  • For longer-term ownership, cash-out is available provided a Completion Guaranty on budgeted improvements in an amount at least equal to the cash-out in place
Upfront Fee Standard 0.5% of loan amount nonrefundable upfront fee subject to adjustment depending on loan terms
Eligible Borrowers
  • Developers/operators with experience in multifamily property rehabilitation and in the local market with sufficient financial capacity
  • 1.5x the standard minimum net worth and liquidity requirements for guarantors
Eligible Property Types
  • Properties with no more than 500 total units in good locations
  • Well-constructed properties requiring modest repairs
  • Market laggards that require capital infusion and new/improved management
  • Real-estate owned properties in receivership that are capable of improved performance
  • Seniors housing, student housing and manufactured housing communities are not eligible
Amount
  • Maximum loan-to-purchase / loan-to-value (LTV) ratio: 85%
  • Minimum amortizing debt service coverage ratio (DSCR): 1.10x – 1.15x depending on market
  • Sizing based on a 7-year sizing note rate
  • Appraisal must include as-is and as-stabilized values; underwriting must support a 1.30x DSCR and 75% LTV based on as-stabilized value supported by the appraisal
  • Standard Freddie Mac underwriting based on as-is income and expense
  • Refinance Test not required
  • No pro-forma underwriting of future performance
Rehabilitation
  • Rehabilitation must commence within 90 days of loan origination and be completed within 33 months
  • Acceptable budget of $10,000 per unit to $25,000 per unit
  • Budget can be adjusted by as much as 20% without additional approval; 50% of the budget should be spent on unit interiors
  • Completion Guaranty or rehabilitation escrow required
  • Borrower/Servicer reporting required
At Loan Maturity/Refinance
  • Final engineer review of work completion and quality is required
  • Refinance with Freddie Mac with no exit fee; otherwise 1% applies
  • Freddie Mac will re-underwrite the loan according to then-current credit policy parameters
  • One-year borrower extension option is available for a 0.5% extension fee, assuming no event of default
  • Additional Freddie Mac extension option is available thereafter with a 1% extension fee
Fees Standard fees apply, including application fee and good faith deposit.

V020623

ARBOR.COM | 800.ARBOR.10
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