Freddie Mac’s aggressive push into multifamily lending is gaining traction with landlords, which are finding the agency is beating out the community banks that normally play in that space on its loan terms.
The agency funded $968.6 million in loans across the New York metro area during the first nine months of the year through the small-balance loan program it launched three years ago, according to Freddie’s figures. That’s nearly double the $531.2 million it funded under the program in all of 2016.
The move is part of an aggressive push by Freddie to gain traction in affordable and workforce housing.
David Brickman, head of Freddie’s multifamily business, said its lending began to increase significantly when the Federal Housing Finance Agency – which oversee Freddie Mac and Fannie Mae – excluded certain portions of the workforce-housing market from the agency’s annual lending cap.
“Doing so has effectively turned a spotlight on this underserved asset class, which is aging and might otherwise be at risk of removal at a time when affordable rental housing already is in short supply,” he said.
Through a handful of different lending programs, Freddie funded $2.2 billion in loans in the metro area out of its “uncapped” pool during the first three quarters of the year – nearly triple its total from 2016.
Freddie launched its small-balance program – which finances loans in New York City up to $7.5 million – in 2014 to target small multifamily buildings that don’t receive any form of affordability subsidy, but nonetheless serve low- and middle-class renters. But it’s also taken on some larger deals by funding multiple loans on portfolios.
Last month, Isaac Kassirer’s Emerald Equity Group refinanced most of the buildings in the 959-unit Bronx portfolio it bought in 2016 for $140 million with a $129 million Freddie Mac loan.
The deal was actually 34 independent loans covering 850 units and was the largest deal to date under the SBL program.
“They offered more proceeds than the traditional balance sheet lenders,” said Jack Miller, a principal at Platinum Capital Group who represented both sides in the refinancing. “The real truth is, when you’re talking about such numbers, there are a very select few banks that able to entertain such a loan.”
Cushman & Wakefield’s Ryan Carlson said Freddie’s aggressive and competitive terms have resulted in the agency winning deals and “being the lender of choice on certain deals for multifamily and mixed-use properties.
He listed several reasons. For one, Freddie will lend at up to 80 percent of the value of a property, as opposed to community banks that usually won’t go above 75 percent. He said Freddie is also more comfortable with a lower debt-service coverage ratio that leaves owners with more liquidity, and offers lower interest rates.
“Freddie’s [program] is real competitive with the community banks, if not beating them on proceeds, leverage and rate, which is really an interesting story,” Carlton said. “Historically, the agencies have been, for lack of a better term, priced out of New York.”
Lender Greystone & Company last month announced it was the first lender to originate $1 billion in loans for Freddie’s small-balance program for 2017. (Greystone in August originated another record deal for Freddie – the $550 million refinancing of the affordable component for the Moinian Group and SL Green Realty’s Sky apartment tower on the Far West Side – which came out of a different program targeting affordable properties that receive some kind of subsidy.)
To be sure, though, while Freddie’s gaining traction, it still has only a small slice of the market share.
JPMorgan Chase, which has a large small-loan business, originated between $900 million and $1 billion in the five boroughs in the second quarter alone with a median loan size of $2 million, according to the CRE data firm CrediFi.
Signature Bank – a powerhouse in multifamily lending – originated between $700 million and $800 million during the same time, with a median loan size of $5 million. That figure was down nearly 50 percent from a year earlier.
Overall, commercial real estate lending in New York City remained flat, thanks to a handful of big deals.
Lenders originated $24 billion worth of loans in the city’s five boroughs in the second quarter of the year, according to CrediFi. That was on par with the $24 billion in originations a year earlier, though CrediFi noted that if it weren’t for a pair of particularly large loans – the $2.3 billion refinancing of the General Motors Building and the $1.2 billion provided for 245 Park Avenue – lending would be down on the quarter.