Not your fathers' Fannie and Freddie: Agencies now offer streamlined multifamily finance solutions

As economic turmoil persists, many New York apartment building owners are facing challenges: reduced demand, increased supply, and a difficult time to refinance. Consequently, finding capital remains tough for apartment building owners across the board-even those with well-performing assets. The need for funding is compounded by the fact that traditional sources of capital have dried up, leaving apartment building owners who attempt to refinance debt with few options. But there is another avenue to capital: Agency financing through Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac: More Streamlined Than Ever Despite the dire headlines and government intervention last year, the agencies continue to provide capital to projects with sound fundamentals. Banks that have strong relationships with the agencies can continue to lend to apartment and senior housing owners of properties with demonstrably solid returns. It's no secret that some New York apartment building owners have been reluctant to deal with Fannie Mae and Freddie Mac, fearing miles of red tape and an impenetrable government bureaucracy. However, the credit crunch has opened borrowers' minds to new solutions, and the processes at the agencies are a lot simpler than many building owners realize. While concerns about delays and paperwork are understandable, borrowers should know that the agencies have taken steps to make sure not only that capital is available, but also that loans can close in a surprisingly rapid timeframe-as little as 60 days. In addition, the cost of capital through Fannie Mae and Freddie Mac right now is significantly lower than terms building owners can get elsewhere. Ten-year fixed-interest rates hover around 6%, and with the LIBOR at historically low levels, variable rates can be below 4%. Simplicity is the Name of the Game Contrary to mistaken conventional wisdom, what it takes to get from loan application to closing with a licensed lender is a straight-forward process. It does not require more documentation than most real estate owners would typically expect from a private sector lender prior. In the Beginning First-time borrowers should begin the process by consulting a financial institution with strong agency relationships-dating back to before the credit crunch. Financial institutions with longstanding relationships will be better shepherds for first-time borrowers navigating these waters. Fannie Mae and Freddie Mac in particular only offer financing through designated underwriting and servicing partners, not directly to borrowers. The financial institution can help the borrower determine if a multifamily project will qualify for an agency loan, and if so, what type. Fannie Mae and Freddie Mac offer various options of fixed and floating-rate debt for both market-rate and affordable multifamily projects, and an experienced agency loan originator will be able to identify which option best meets the borrower's financing objectives. Painless Documentation After determining the appropriate financing option, the borrower must provide the necessary documentation to obtain a quote and loan application: historical property operating statements, pro forma operating budget, current rent roll, a description of the project and the qualifications and financial strength of the sponsorship. Once terms are agreed upon and the borrower signs a loan application, the lender will begin to process the loan. The borrower will be introduced to the deal team, which typically includes a loan processor who collects and distributes information, an underwriter and a closer.  A new MAI Appraisal, Phase 1 Environmental Report and Property Condition Report will be ordered. Additional information will be required on the property, the borrower organizational structure and on the key individuals who will be borrowing the money. With the exception of standard "bad boy" carve-outs, agency loans are non-recourse to the individuals. Processing costs, including lender legal fees, typically run around $25,000 for standard-sized transactions ($3 million and up). A good lender will set a schedule of periodic conference calls, typically weekly, where all parties involved will discuss progress, timing and any issues that may arise.   Closing the Loop-and the Loan The agencies have been closing loans for decades and are adept at reaching uncomplicated closings. The process has been refined and documentation has been standardized over time. There is very little negotiation required. This stage entails the legal documentation process, during which the lender's counsel drafts loan documentation. Once the commitment letter is signed, documentation is finalized and the loan closes. The entire process can take as little as two months from start to finish: two weeks from loan application to rate lock, another four to five weeks for a firm commitment and one to two weeks from commitment to closing. A Bright Spot for Borrowers Capital, the increasingly elusive commodity, is needed more than ever and is sought by lenders and borrowers alike. There is a surprisingly simple solution for New York multifamily owners: Agency financing for borrowers who partner with the right bank. For first-time agency borrowers, the process may seem intimidating, but it is not as complicated as it sounds - and the cost of capital and turnaround time are attractive to all involved. John Manginelli is a senior vice president with KeyBank Real Estate Capital based in New York, and Todd Goulet is a senior vice president with KeyBank Real Estate Capital, based in the Boston office.