Bond Financing for Multifamily Housing

State and local governments sell tax-exempt bonds to finance apartments affordable to lower income families. According to the National Council of State Housing Agencies (NCSHA), multifamily housing bonds have been used to produce nearly 1 million affordable apartment units in the United States.

These bonds are “tax-exempt” because the purchasers do not have to pay taxes on interest payments. Consequently, purchasers are generally willing to accept lower interest payments for these bonds because of the tax savings. These bonds are also sometimes referred to as “private activity bonds” because they are used to promote private investment for the benefit of the public (the production of affordable housing). Each state is authorized to issue a set amount of private activity bonds under IRC §142(d)). According to The Bond Buyer, the 2013 volume cap for each state is the greater of $95 per capita or $291,870,000.

2013 Bond Volume Caps

When applying for bonds, a sponsor approaches an issuer (typically a city, or a county, or a housing authority) to petition the state to issue a portion of their volume cap of private activity bonds. Each state has different policies regarding how this process works. Virginia, for example, issues bonds through the state housing finance agency (VHDA). North Carolina, on the other hand, has established a policy of looking to local housing authorities to issue bonds (NCHFA). Issuers often prefer that bond transactions benefit from credit enhancement through a recognized provider (HUD, Fannie Mae, Freddie Mac).

Multifamily housing projects that are financed with tax-exempt bonds are also eligible for 4% housing tax credits. Unlike the 9% credit, there is no “limited pool” for the 4% housing tax credit. To obtain 4% credits, a sponsor must apply to the state housing finance agency for the credits. Local bond issuers are not authorized to allocate the 4% tax credit.

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding your bond-financed property.

Tax-Exempt Bond Credit Enhancement: Freddie Mac Products

Freddie Mac provides tax-exempt bond credit enhancement for the construction and rehabilitation of multifamily properties. Like Fannie Mae, Freddie Mac products are priced higher than HUD but the application process is more streamlined. Further, there are no Davis-Bacon requirements and you can expect a realistic closing in 90 days with Freddie Mac. Freddie Mac credit enhancement applies to fixed-rate bonds only.

FreddieMac Logo

Typical terms for new construction deals in today’s lending environment:

DCR: 1.15
Loan to Value: Up to 90%
Interest Rate: 6.00-6.25% (Fixed / Forward Commitment)
Amortization: 35 years
Term: 15 years
Non-Recourse: Yes
Davis Bacon Requirement: No
Closing Time Frame: 90 days after bond inducement

Typical terms for renovation deals in today’s lending environment:

DCR: 1.15
Loan to Value: Up to 90%
Interest Rate: 4.50-6.00% (Fixed)
Amortization: 35 years
Term: 15 years
Non-Recourse: Yes
Davis Bacon Requirement: No
Closing Time Frame: 90 days after bond inducement

According to the Wall Street Journal, the top six Freddie Mac lenders financed $18.8 billion in multifamily loans last year:

1) CBRE Capial Markets – $6.2 billion
2) Berkadia Commercial Mortgage – $3.6 billion
3) Wells Fargo Multifamily Capital – $2.4 billion
4) Holliday Fenoglio Fowler, LP – $2.4 billion
5) Walker & Dunlop, LLC – $2.3 billion
6) NorthMarq Capital, LLC – $1.9 billion

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding your bond-financed property.

Tax-Exempt Bond Credit Enhancement: HUD Products

HUD provides tax-exempt bond credit enhancement for the construction and rehabilitation of multifamily properties. Although HUD products are priced lower than Fannie Mae, the application process is more onerous and Davis-Bacon wage requirements apply in certain cases. Like Fannie Mae, credit enhancement applies to fixed-rate bonds only.

HUD Seal

There are two HUD products for new construction and substantial rehabilitation: 221(d)(3) and 221(d)(4) financing. The 221(d)(4) program applies to for-profit owners; the 221(d)(3) program is for non-profits. Typical terms for transactions in today’s lending environment:

DCR: 1.15
Loan to Cost (Not Value): Up to 87%
Interest Rate: 3.50-3.75% (Fixed)
MIP: 0.45%
Amortization: 40 years
Maximum Loan Amount: HUD Cost Limitation
Non-Recourse: Yes
Davis Bacon Requirement: Yes
Closing Time Frame: 180 days

HUD’s 223(f) program is designed for the acquisition and moderate rehabilitation of multifamily properties. Within this program, HUD has implemented the 223(f) pilot – a product specifically designed for the moderate renovation (less than $15,000/unit) of tax credit properties. The product has also been used to credit enhance bond deals. Typical terms for transactions in today’s lending environment:

DCR: 1.176
Loan to Value (Not Cost): 85%
Interest Rate: 3.50-3.75% (Fixed)
MIP: 0.45%
Amortization: 35 years
Maximum Loan Amount: Purchase Price + Soft Costs + Developer’s Fee + Construction Overhead + $15,000/door in Rehab Costs
Non-Recourse: Yes
Davis Bacon Requirement: No
Closing Time Frame: 90 days after bond inducement

The main advantages of the 223(f) program over the 221(d)(3) and (4) programs are the faster closing time and the avoidance of Davis-Bacon wage requirements. The lower maximum loan amounts are a disadvantage, however. This is sometimes offset by the availability of tax credit equity on many 223(f) deals. These factors should be carefully considered when choosing the right program for your property.

According to HUD, its lenders have financed $8.5 billion in multifamily loans to date this year. The 10 largest HUD lenders by volume are found below:

1) Red Mortgage Capital
2) Greystone Funding Corporation
3) P/R Mortgage & Investment Corporation
4) Berkadia Commercial Mortgage
5) Wells Fargo Bank NA
6) Walker and Dunlop LLC
7) Love Funding
8) Prudential Huntoon Paige
9) Oppenheimer Multifamily Housing & Healthcare
10) Dougherty Mortgage LLC

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding your bond-financed property.

Tax-Exempt Bond Credit Enhancement: Fannie Mae Products

Fannie Mae provides tax-exempt bond credit enhancement for the construction and rehabilitation of multifamily properties. Although Fannie Mae products are priced higher than HUD, the application process is smoother, there are no Davis-Bacon requirements, and you can expect a realistic closing within 90 days. Fannie Mae credit enhancement applies to fixed-rate bonds only.

FannieMae Logo

Typical terms for new construction deals in today’s lending environment:

DCR: 1.15
Loan to Value: Up to 90%
Interest Rate: 6.00-6.25% (Fixed / Forward Commitment)
Amortization: 30 years
Term: 18 years
Non-Recourse: Yes
Davis Bacon Requirement: No
Closing Time Frame: 90 days after bond inducement

Typical terms for renovation deals in today’s lending environment:

DCR: 1.15
Loan to Value: Up to 90%
Interest Rate: 4.50-6.00% (Fixed)
Amortization: 30 years
Term: 7-18 years
Non-Recourse: Yes
Davis Bacon Requirement: No
Closing Time Frame: 90 days after bond inducement

According to Housingwire, Fannie Mae and its lenders financed $33.8 billion in multifamily loans last year. The 10 largest Fannie Mae lenders by volume are found below:

1) Walker & Dunlap, LLC
2) Wells Fargo Multifamily Capital
3) Beech Street Capital, LLC
4) CBRE Multifamily Capital, Inc.
5) Berkeley Point Capital, LLC
6) Berkadia Commercial Mortgage, LLC
7) M&T Realty Capital Corporation
8) Arbor Commercial Funding, LLC
9) PNC Real Estate
10) Greystone Servicing Corporation, Inc.

Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding your bond-financed property.