When it comes to getting financing for a multifamily property, CMBS loans and agency loans have a variety of similarities and differences. Both agency and CMBS are typically non-recourse, fully assumable, and offer highly competitive interest rates. However, agency loans usually offer even lower rates than CMBS, with rates starting at 3.75-3.9%. In addition, agency loans have a significantly smaller minimum loan amount, at $1 million, compared to the $2 million minimum set by the vast majority of CMBS lenders. Plus, agency multifamily loans usually offer 30-90 day rate locks, with early rate lock options extending up to 180 days. In comparison, CMBS loans offer little in the way of interest-rate locks, with many borrowers lucky if they can lock their rate a week before closing.

With all the benefits of agency multifamily loans, you might be wondering: why even bother with CMBS? Well, the truth is that Fannie Mae and Freddie Mac loans can be very difficult to quality for. Borrowers typically need great credit scores, experience owning or managing similar projects, and very strong financials. In contrast, CMBS loans are available to those who may not have the greatest credit or the strongest financials. This makes them accessible to much wider variety of borrowers.

Of course, it’s also important to note Fannie Mae and Freddie Mac multifamily loans are only available for multifamily properties. In comparison, CMBS loans are available to a much wider swath of property types, including hotels, office buildings, self-storage facilities, industrial properties, and much, much more.

For multifamily borrowers, CMBS loans are also an effective alternative to Freddie Mac and Fannie Mae multifamily loans, especially in situations where borrowers do not have the best credit or the highest net worth. Fannie and Freddie (the “agencies”) are also particular about the fact that they usually want borrowers to have significant multifamily real estate experience. However, for those who can get them, agency multifamily loans can offer significant benefits, with interest rates even lower than CMBS, supplemental financing options, and even (in some cases) fully-amortizing financing. The same can be said of HUD multifamily loans, in particular, the HUD 223(f) program, which offers LTVs up to 85% for market-rate properties.

Like CMBS loans, both agency multifamily loans and HUD multifamily loans are securitized. However, in many cases, the servicing process for these loans is a little less onerous for borrowers. This is especially the case for agency loans, as many Fannie Mae and Freddie Mac lenders operate as seller/servicers, meaning that they also service the loans they issue to borrowers.

The advantages of CMBS loans for multifamily financing include:

• More autonomy in the operation of the property and more flexibility to deviate from the terms of the loan documents.
• Easier to release collateral.
• Less expensive to exit.
• No lock outs preventing prepayment.
• No reserves required.
• Secondary financing (i.e. mezzanine debt or preferred equity) allowed.

The disadvantages of CMBS loans for multifamily financing include:

• Occasionally more rigid down payment, income verification and credit score requirements.
• Sometimes requires some sort of recourse for borrower.
• Often shorter amortizations and shorter fixed periods than CMBS and agency loans.
• Stricter with cash out refinances.

For more information, please visit www.multifamily.loans/multifamily-cmbs-loans and www.multifamily.loans/multifamily-bank-loans.

In general, lenders look at two major metrics when deciding whether to approve a CMBS loan; DSCR and LTV. However, they also look at debt yield, a metric which is determined by taking the net operating income of a property and dividing it by the total loan amount. This helps determine how long it would take a lender to recoup their losses if they had to foreclose on the property. And, while it’s true that CMBS loans are mostly income based, lenders still typically require a borrower to have a net worth of at least 25% of the entire loan amount, and a liquidity of at least 5% of the loan amount.

Source: www.multifamily.loans/multifamily-cmbs-loans

The typical interest rates for CMBS loans for multifamily financing are between 5.30% - 8.30%, with terms of 5 - 10 years.

This information is sourced from www.multifamily.loans/multifamily-mortgage-rates and cmbs.loans/blog/what-are-the-interest-rates-for-cmbs-loans.

CMBS loans typically have 5, 7, or 10 year terms and are partially-amortizing or even interest-only loans. Standard CMBS loan terms for apartment buildings and other multifamily properties typically include: