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Our general observation is that lenders often attempt to differentiate
their market segment and in doing so attempt to target a perceived, underserved
market need----thus to capture a competitive edge in the broader
marketplace.
Implementing an apartment acquisition by using a FNMA debt often involves
using a
"plain vanilla" version something like this : namely, a fixed rate
non-recourse 10-year term loan with a 30-year amortization, and a loan to be set
at 80% of value.
The apartment property must have maintained a 90% occupancy for 90
days.
In addition, it will generate a 1.25x debt service coverage.
Generally, it includes a yield maintenance provision.
One lender into originating FNMA loans is introducing an interesting twist
onto the basic
"off-the-shelf" apartment loan---say for one starting at a $6 million
transaction value, i.e. a combined loan at a minimum of $5 million.
The basic theory here on the loan structure is to maximize the non-recourse
indebtedness and to reduce the equity required for the pending apartment
acquisition.
Essentially, what is being offered is an agency-accepted, long term,
non-recourse mezzanine debt bringing the standard FNMA loan up to a new total of
85% of value---thus reducing the borrower's equity infusion.
(The lender also will entertain placing an additional debt on the property
at a later date,
i.e. in year two or three, but if it pursued, with the mezzanine debt to be
paid down from the first proceeds of any supplementary loan.)
Their initial mezzanine debt for a new loan is "coterminous" with the
underlying first mortgage FNMA loan, i.e. it is at a full ten-year term
and with a 30-year amortization.
It is non-recourse.
No participation in cash flows is required.
And under current markets, the blended rate on the combined apartment
debt---i.e.
the sum of the basic FNMA loan and the additional mezzanine debt ---is
today likely to be in the range of 6.15% to 6.25%, which hopefully may be
helpful to a borrower on a proposed apartment acquisition.
(No doubt in response to the private market efforts, FNMA is now rumored to
be considering a move to a slightly higher loan-to-value on its debt.)
If you wish to discuss your apartment transaction, please feel free to call
Mr. Margolin of Chilmark Associates Inc. at
203-353-0897.
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