–Agency Loans-FNMA and Freddie and FHA-
– Positive-These products have the lowest rates-since there is a fluid market for them and they are directly or indirectly backed by the government or perceived to be. Fixed terms can be as long as 40 years on the FHA loan and rates on this product are in the 4’s right now. They are also-NON-RECOURSE. And for apartment construction, nothing beats the FHA program-10% equity into the project, 35 year fixed rates in the 4’s and NO Recourse-SWEET!
-Negative-The loans are government loans which means lots of paperwork and extremely slow closing times. Construction lending on Assisted Living Facilities (FHA) can take a year, construction on apartments can take 6-8 months and just a normal loan will often take 4 months to close on this product. Agency product is not available for retail, industrial, etc.
NOTE: USDA loans can be done for investor and they can do other property types like office and retail HOWEVER, the turn times are atrocious. I have a movie theater loan that is a $7 Million dollar construction loan being done on the USDA. Going on 8 months now to get that one closed and we are still not cleared yet. They take a long time BUT they are doable and sometimes, it is the only way to get it done. This is for rural areas only.
–Life Company Loans–
These are loans from life insurance companies. These loans may or may not have recourse depending on the deal but usually have some measure of recourse. The key to life company loans is that each life company has different hot spots. Some like NNN credit tenant, some like Multi-tenant deals, some like to buy discounted notes. Each one has a strategy so unless you have access to multiple life companies, you won’t have the full range of investor products. Rates are higher than agency-5’s generally but the turn times are quicker. They also do all the four main food groups-retail, office, industrial AND apartments. We have access to many different life insurance companies across the country. Life companies look for good areas, major metros, and states with good growth. They are very cautious in rural areas or depressed states.
-Conduit loans
These are readily available above $10 Million, moderately available above $5 Million and tough to get below $5 million in loan size. So this is for your bigger deals. They can do the four food groups, the loans are non-recourse, and rates will usually be 10 year fixed in the 5’s. This is for your large office and retail deals. Grocery anchored retail is very hot for this group as well as apartments. Generally just major metros.
-Hedge Fund loans
There is a lot of diversity amongst the hedge funds as to what they look for and what types of properties. They may be open to special use properties like Hotels but the deals have to be very strong. Rates can be fantastic and they are almost always full recourse. For example, I have one fund out of NY that will go to 80% on apartments, even cash-out and will give a rate of 5.25% fixed for 10 years with a 25 year amortization. They will go to 75% on the other main food groups. They can close fast-30-45 days but with excellent rates.
-Credit Unions-
Credit Unions are aggressive again. They will consider the broadest range of deals-generally, the deal has to make sense. In isolated situations, they can even entertain construction. Deal has to cash flow, buyer has to be strong, but you can run good investor deals by them and they can get it funded. Most can go to $3 million without participating, after that, they need to bring in other credit unions but they can do it and do some pretty large deals. We have access to good credit unions throughout the country. You can get a lot of deals done with this group where they do not fit in any of the above categories. Rates are a little higher-generally above 6% but again, you can get deals done there.
-Bridge Money
No quick review of investor product would be complete without discussing bridge money. Bridge money is VERY useful when you need to close quick and don’t have time to waste on expansive underwriting and turn times. A lot of people will take out bridge money while the wait for their FHA loan to close for example. Ideal situations are where occupancy is not high enough to qualify for the groups above(need 85% occupancy generally for the good rates) and the client has experience and reserves and can renovate and/or get the occupancy up to refinance into more conventioanal rates. Rates are usually 10-14% however, for large deals over $10 Million, we have one bridge loan product that is 2-3 years fixed and priced between 6 and 8% interest only! Very hot. These are quick closings-usually 3-4 weeks and short term in nature but they can get the deal closed and are a valuable arrow in your quiver so to speak.
I hope this little review was helpful! We have access to all the above products and more and can really help you close commercial transactions. For more info, or to run a possible scenario by me, just give me a call today at 888.650.9966 Ext.100 or e-mail me at MM@McDevitt.CO . Have a blessed week!
Mike