Freddie Mac Value Add Multifamily Loans

Does your multifamily property need some modest renovations? If so, a Freddie Mac Value Add Multifamily Loans could be the perfect solution for you. This program offers borrowers short-term and cost-effective financing for light property upgrades and renovations. Borrowers receive competitive pricing and lower overall closing costs. Both interest-only and uncapped floating-rate loans are available. As opposed to the Freddie Mac Moderate Rehab Loan program (created to finance substantial renovations) this loan program is intended to fund modest renovations of between $10,000 and $25,000 per unit. With terms like non-recourse loans and LTV up to 85%, the Freddie Mac Value Add program is perfect for multifamily developers who need extra funds to some light rehab work on their properties.

Freddie Mac Value Add Multifamily Loan Highlights

Loan Size: Based on LTV and DSCR requirements

Maximum LTV: 85%

Minimum DSCR: Based on market. Ranges between 1.10x-1.15x

Loan Purpose: Both acquisitions and refinances

Loan Term: Three years with one 12-month extension (per borrower’s request) and one optional 12-month extension (per Freddie Mac’s discretion)

Interest Rates: Floating rate and interest only. No interest rate cap

Prepayment Penalty:  Loan can be paid off at any time with 1% penalty. No penalty if the loan is refinanced with Freddie Mac. There is no lock out period.

Eligible Borrowers:

• Sponsor must have experience with multifamily property rehabilitation
• Sponsor must also have experience in the local market
• 1.5x the standard minimum net worth and liquidity requirements for guarantors

Eligible Property Types:

• Properties must be in good markets and have no more than 500 total units
• Well-constructed properties requiring modest repairs
• Real-estate owned properties in receivership that are capable of improved performance
• Excluded properties include seniors housing, student housing and manufactured housing communities

Rehabilitation:

• Rehab work must begin within 90 days of loan origination and be completed within 2 years and 9 months
• Budget of $10,000 to $25,000 per unit is allowed
• Sponsor can adjust budget up to 20% without additional approval
• At least half of the budget should be spent on unit interiors
• Completion Guaranty or rehabilitation escrow required
• Borrower/Servicer reporting required

Other Terms:

• Typically requires a 15% cash equity infusion
• Escrows for real estate taxes, insurance and replacement reserves required
• Sizing based on a 7-year note rate
• Appraisal must include both as-is and as-stabilized values
• Underwriting must support a 1.30x DCR and 75% LTV based on as-stabilized value supported by the appraisal
• Pro-forma underwriting of future performance is not allowed
• Refinance Test not required