10.20.10: ValueXpress CMBS Partner Seeks Multifamily Loans

Multifamily property loans have been slow to return to CMBS conduit transactions, primarily due to the high leverage and low initial DSCR that has resulted in poor performance of multifamily properties in CMBS transactions. According to Trepp, 14.4% of multifamily transactions are delinquent as of September 30, 2010. This is the second-highest delinquency rate after hotels (19.3%) in the CMBS universe. In comparison, retail, office and industrial properties report delinquencies in the 6%-7% range for the same period.

That said, underwriting for quality multifamily transactions is changing for the better. A key CMBS conduit loan relationship has begun to solicit Class A and Class B apartment loans in primary and secondary cities. Multifamily LTV will be limited to 75% and debt-service coverage must be at least 1.40x, resulting in a debt yield of no less than 10%. (To determine debt yield, take underwritten net cash flow and divide by the loan amount). Interest rates are currently in the 5.5% area for a 10-year fixed-rate term based on a 30-year amortization schedule. Loans of $5 million and up are preferred. “Loan amounts are being limited primarily by LTV,” observes Gary Unkel, Senior Loan Originator at ValueXpress. “With cap rates in the 7.5%-8.5% area for Class A- and Class B apartments, debt-service coverage and debt yields are not typically limiting the loan proceeds, but LTV is. This new program represents an increase from 70% LTV to 75% LTV, which will result in more proceeds to the borrower.”

The program is expected to be competitive for loans that do not qualify for Fannie Mae execution. “Fannie is the best game in town for apartment loans,” explains Michael D. Sneden, Executive Vice President of ValueXpress. “But not all properties qualify, so this CMBS conduit alternative is well suited for those transactions that cannot obtain Fannie Mae financing.”

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