CREJ - page 17

September 2-September 15, 2015 —

COLORADO REAL ESTATE JOURNAL

— Page 17

Finance

n the Colorado multifam-

ily real estate market, par-

ticularly Denver, now is an

excellent time to take advantage

of market conditions that favor

Federal Housing Administration

financing from the U.S. Depart-

ment of Housing and Urban

Development. Multifamily prop-

erty values are high and the

demand for financing is on the

increase. This is being driven by

robust valuations, elevated levels

of investment activity and above-

average construction deliveries.

However, despite low rates and

strong multifamily fundamen-

tals, some borrowers are find-

ing themselves with fewer viable

debt financing options.

Recent moves by Fannie Mae

and Freddie Mac to increase

pricing and slow loan demand

are raising questions about how

many deals will be financed.

Furthermore, with no end in

sight for soaring multifamily

loan demand, these concerns are

likely to persist in coming years.

The issue is more than just high

demand and limited supply, but

also a lack of suitable alterna-

tives for properties outside the

selective conventional financing

box. Some of the deals crowded

out by Fannie Mae and Freddie

Mac will land with commercial

mortgage-backed securities or

life companies. But a significant

beneficiary will be FHA, which

is gaining in popularity as bor-

rowers seek higher-leverage and

longer-term fixed-rate financing.

Due to a number of developing

trends, FHA is positioned to cap-

ture an increasing share of this

business.

This opens up the opportunity

for HUD/FHA financing with

its high-leverage loan-to-value

ratios, long-term fixed rates and

flexibility. For example, the ratio

on a market-rate refinance is cur-

rently 83.3 percent (80 percent

if the deal includes cash out).

Leverage on an affordable prop-

erty refinance is even higher at

87 percent.

FHAmultifamily loanproducts

cover acquisition, refinancing,

new construction and rehabilita-

tion/renovation. A unique fea-

ture of FHA construction loans

is that they automatically roll

into fixed-rate, permanent loans

when construction is complete.

The rate is locked at the time the

firm commitment closes.

FHA is the

way to go if

you’re look-

ing for high-

l e v e r a g e ,

l o n g - t e rm ,

f i x e d - r a t e

financing for

m u l t i f a m -

ily and health

care

facili-

ties. FHA will

finance prop-

erties

that

offer either

market rate

rents or affordable (reduced)

rents for low-income families, the

elderly and persons with disabili-

ties.

Top trends favoring FHA.

Four trends are currently giving

FHA financing a boost in the

Colorado multifamily market.

First, property values are high

andmultifamily owners are look-

ing to capitalize on current mar-

ket conditions. However, selling

presents one of two issues: a siz-

able tax consequence or paying

topdollar (via a 1031 exchange) to

invest in a crowded pool of hun-

gry multifamily investors. For

these reasons, FHA has become

an attractive alternative for many

multifamily owners. With high

LTV ratios and a 35-year term,

owners can extract equity at cur-

rent valuations and still benefit

from future rent growth – all

without the tax consequence of

a sale.

Second, despite the consensus

view that interest rates will con-

tinue to rise, interest rates remain

near historic lows. Multifamily

owners are increasingly bypass-

ing shorter-term debt options

and instead seeking to lock in

longer-term, fixed-rate financing

such as FHA. There is no tell-

ing what the next multifamily

cycle will bring, so locking in a

low interest rate for 35 years has

become an appealing strategy for

many owner-investors.

Third, the availability of gov-

ernment-sponsored enterprise

financing through the remainder

of 2015 may be limited to certain

borrowers due to complications

surrounding the GSE lending

cap. This will result in more local

FHA transactions, as some bor-

rowers will seek financing alter-

natives to the GSEs.

Fourth, probably the most

important trend, is the huge and

growing need for multifamily

housing in Colorado. Especially

in Denver, there is a high rate of

jobgrowth that is fuelingdemand

for additional multifamily sup-

ply. We’re seeing more and more

in-migration from other states –

word is getting out that Denver

has well-paying jobs coupled

with 300 days of sunshine. The

flexibility of FHA to finance mar-

ket-rate and affordable properties

as well as new construction and

permanent loans will continue to

boost FHA business in the Colo-

rado multifamily market.

Challenge and opportunity.

By far the biggest challenge for

FHA borrowers is timing. FHA

deals take more time compared

with Fannie Mae, Freddie Mac

and other capital sources.

If borrowers can get comfort-

able with this longer time frame,

they can reap a golden oppor-

tunity: high leverage, long-term

financing with some of the best

terms in the market.

Familiarity breeds success.

To ensure success in obtaining

FHA financing, it’s critically

important to choose a lender

with a deep knowledge of and

familiarity with FHA loan pro-

grams. A lender with sufficient

depth of FHA experience will be

able to demonstrate a certainty of

FHA execution.

Not only do you need an FHA

specialist lender backed by a

strong track record, but also you

need to make sure that the com-

pany you choose has deep HUD

resources. That’s because HUD

relationships are important. Your

lender should have senior staff

who are experienced in working

with HUD and who understand

the agency’s loan programs. This

is a key point because it goes

back to why FHA is different

than other capital sources. Since

FHA financing is a service rather

than a commodity, it is important

to use a financing company that

knows its way around in this

service-based lending niche.

If you are dealing with an

FHA-savvy lender, it will lead

you in the right direction.  

The bottom line on FHAfinanc-

ing is that it is not for everyone.

But, if you have the time, and

need long-term, high-leverage

financing, there currently is no

better financing vehicle for multi-

family properties in the Colorado

market.

Time to take another look at FHA

financing for Colo. multifamily

Anthea Martin

Vice president, FHA

Finance Group,

Walker & Dunlop Inc.,

Denver

loan funded by a life insurance

company for a Lakewood prop-

erty of six buildings on 3.43 acres

with 72 tenants. The office com-

plex was constructed in 1975 and

renovated in 1994. The loan has

a five-year fixed interest rate and

was amortized over 22 years.

Terrix also closed $24.73 mil-

lion in loans for 13 retail proper-

ties.

Of that, Brandon Rogers closed

$8.13 million in loans for four

retail properties. He also worked

with Jay Richert to close a $3.5

million acquisition loan for a

Parker center, which was 91 per-

cent occupied with nine tenants.

The interest rate was fixed for

seven years with a 25-year amor-

tization, and limited recourse to

the borrower. The loan closed in

40 days to meet a deadline.

Rogers and Gibson closed two

retail loans for a total of $3.3

million.

One of the properties was in

Las Vegas and was 100 percent

occupied by seven tenants.

The loan has a 10-year term

with a 25-year amortization and

no prepayment penalty.

The lender was a regional

bank and the borrower was a

local Colorado investor.

Craig Branton closed $5.56

million for two retail properties

in Englewood.

Marsha Blair assisted him

with a $3.61 million refinance

loan for a retail center located

out of state. Constructed in 2002,

it contained 32,400 net rentable

sf.

Branton and Jay Richert also

closed two retail property loans.

Both were funded by a corre-

spondent life insurance com-

pany represented by Terrix and

had a 15-year term and 25-year

amortization.

One was for a restaurant. The

borrower is an experienced real

estate investor and current Ter-

rix client. The investor spent

$200,000 on renovating the

kitchen in the restaurant and the

parking lot had been upgrad-

ed, making the property more

Terrix

Continued from Page 16

Please see

Finance,

Page 26

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Information & Links, Please Visit

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