Apartment 2Multifamily Financing Types

Multifamily loans are a subset of commercial loans. They are generally considered to be lower risk than other commercial real estate investor loans, so they typically offer better terms and lower rates.  Like commercial real estate loans, there are several categories of multifamily loans.  Multifamily financing generally falls into three categories: apartment loans, multifamily financing and structured financing.

However, unlike other commercial real estate loans, the delineation for what type of loan is appropriate can often be difficult to understand.  Apartment loans and some multifamily financing fall under a general category known in the market as Small Balance Loans.  These are loans from $1 million to $5 million.  Above the $5 million mark are conventional multifamily financing and above the $10 million mark the financing usually enters into the Structured Finance category.

Currently apartment loans and multifamily financing in the small balance loan segments are offering extremely aggressive rates and have become comparable with rates offered in high level structured finance deals except with higher LTVs, up to 80%! (an 85% CLTV is obtainable in some cases when the borrower has a 15% down payment and the seller holds a 10% second mortgage).

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Commercial Real Estate Loan Types

Commercial real estate loans fall into two categories. Those commercial real estate loans made to commercial real estate investors and those made to business owners who will occupy all or at least 51% of the total building square footage.

Commercial Real Estate Loans for Investor are underwritten primarily based upon the ability of the property to generate cash flow from the collection of rents for the use of the property.  These loans historically were handled through the CMBS market but today are primarily made through origination platforms, whether they be bank owned or independent, and are ultimately funded by credit union consortium, life insurance companies, pension funds, GSE’s and other large investment and enterprise platforms.

Commercial real estate owned by a business for business use is usually not considered investment property because the source of cash flow to service the debt is generally the business that is housed inside of the property, not the property itself.  Most of these types of properties are financed using some type of small business loan program like the SBA 504 or SBA 7(a) programs which base underwriting decisions on the financials of the business and not on the property’s ability to generate cash flow.


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