Freddie Mac Lease-Up Financing

Loans for New, Pre-Stabilized Multifamily Properties Insured by Freddie Mac

Getting a recently constructed or recently acquired property through the lease-up period can be significantly challenging. Coming to the aid of investors who must navigate this challenge, Freddie Mac has designed the Lease-Up Loan specifically to help investors succeed during this period. The Freddie Mac Lease-Up Loan is perfect for both the acquisition and refinancing of newly constructed multifamily properties.

Freddie Mac Lease-up loans come with many of the attractive terms that Freddie Mac loans are known for. The Lease-up loan can be fixed or variable rate, is nonrecourse, comes with a loan-to-value allowance of up to 75%, and even permits the financing of eligible mixed-use properties. The feature that sets it apart from other financing options, however, is the 12-month interest-only period, which is what makes them ideal for properties that don't yet have a strong stream of rental income.

Freddie Mac Lease-up Financing Sample Terms

• Size: Varies based on debt service and leverage
• Use: Purchases and refinances of new multifamily construction
• Terms: 5-10 years (Terms can go up to 30 years for non-securitized loans)
• Amortization: Up to 30 years, optional I/O financing
• Recourse: Non-recourse with standard carve-outs
• Maximum LTV/Minimum DSCR:
• Refinances:
• Conventional and Targeted Affordable: 75%/1.30x
• Seniors Housing with Independent Living: 70%/1.35x
• Seniors Housing with Assisted Living: 70%/1.45x
• Purchases:
• Conventional and Targeted Affordable: 70%/1.30x
• Seniors Housing with Independent Living: 70%/1.35x
• Seniors Housing with Assisted Living: 70%/1.45x
• Minimum Equity Required:
• Refinances:
• Conventional and Targeted Affordable: 15%
• Seniors Housing Independent or Assisted Living: 20%
• Purchases:
• Conventional and Targeted Affordable: 25%
• Seniors Housing Independent or Assisted Living: 25%
• Prepayment Penalty: Borrowers may pay yield maintenance until the loan is securitized. After securitization, a 2-year lock-out period begins, after which borrowers may conduct defeasance. Borrowers can pay an additional upfront fee at closing to opt for yield maintenance. Pre-payment premiums are waived for the final 90 days of the loan.
• Rate Lock: Rate locks issued when the property reaches:
• 50% of unit occupancy
• 60% of the units leased
• 60%+ units have Certificates of Occupancy
• Eligible Borrowers/Properties:
• Borrowers should have significant experience with multifamily construction and lease-up scenarios. Good credit and reasonable net worth/liquidity also required.
• Conventional, Targeted Affordable, or Seniors Housing (Assisted Living/AL or Independent Living/IL) properties.
• Manufactured Housing Communities (MHCs) and Student Housing are not permitted.
• Properties should generally reach stabilization 1 year after closing (or before).
• Closing Requirements:
• Refinances:
• 1.05x DSCR
• 65% of units must be occupied
• 75% of units must be leased
• 100% of units must have Certificates of Occupancy issued (Conventional and Targeted Affordable)
• 90% of units must have Certificates of Occupancy issued (Seniors Housing with Independent Living and/or Assisted Living)
• Assisted Living properties must have all required licenses authorizing operations
• Purchases:
• 1.0x Debt Service Coverage Ratio
• 65% current occupancy/75% of units currently leased
• For Targeted Affordable or Conventional properties, all units must have a Certificate of Occupancy
• For Seniors Housing (AL or IL), 90% of units must have a Certificate of Occupancy
• Assisted Living (AL) developments need state licensing, insurance, and other necessary licensing and documentation
• Lease-Up Credit Enhancements: Required
• Lease-Up Credit Enhancement must be a minimum of:
• 5% of the unpaid principal balance (UPB)
• 10% of the unpaid principal balance (UPB) if the Lease-Up Credit Enhancement is a guaranty (other rules and conditions may also apply)
• These funds will be released when the property reaches the appropriate DSCR (usually 1.25x) for a minimum of 90 days and is otherwise in compliance with Freddie Mac rules and regulations
• If the debt service target cannot be met within 12 months, loan resizing will occur, with an associated recast of payments.
• Advantages:
• Loans are non-recourse
• LTVs of up to 75% allowed
• Eligible mixed-use properties supported
• Permits borrowers to get a rate lock before a property has reached stabilization
• Additional loan flexibility may be available on an individual basis, especially for premier sponsors and markets (Seniors Housing not eligible)
• Some loans for premiere sponsors/markets may not require Lease-Up Credit Enhancement
• Disadvantages:
• Appraisals must include both the as-is and stabilized value of the property
• Some lenders may not fund Seniors Housing Lease-Up Loans
• Some lenders may mandate an up to 30% Cash Equity Requirement
• Properties must be at least 90% occupied and achieve a 1.25x amortizing DSCR at stabilization (over a 3-month consecutive period)
• Lease-Up Credit Enhancement required until properties reach the required amortizing DSCR (also typically 1.25x) for at least 3 months