FREDDIE MAC OPTIGO®
Student Housing Value-Add
Our Student Housing Value-Add Loan offers short-term, cost effective financing for modest property upgrades. Borrowers receive competitive pricing and lower execution costs. Both interest-only and uncapped floating-rate loans are available. And, with all Freddie Mac financing, this loan is non-recourse and provides “one-stop shopping” for upgrade and permanent financing.
DOES YOUR STUDENT HOUSING PROPERTY NEED A LIGHT RENOVATION?
- Experienced Borrowers who have successfully demonstrated expertise with comparable student deals.
- 1.5x the standard minimum net worth and liquidity requirements for guarantors.
ELIGIBLE PROPERTY TYPES
- Properties with no more than 250 total units or 625 beds.
- Well-constructed properties requiring modest repairs.
- Market laggards that require capital infusion and new/improved management.
- Real-estate owned properties in receivership that are capable of improved performance.
- 15,000 student enrollment minimum. This standard is greater than the student housing policy minimum of 8,000. Properties must be within 2 miles of campus and have convenient access to campus by either public transit, shuttle or pedestrian access.
- Three years with one 12-month extension based on the borrower’s request and one optional 12-month extension based on Freddie Mac’s discretion.
- Floating-rate loan with full-term interest-only; no cap required.
- No lock out; borrower may pay off the loan at any time but must remit an exit fee of 1%; the exit fee will be waived if the loan is refinanced with Freddie Mac.
- Acquisitions and refinances; not assumable.
- Loan documentation at origination will include the Value-Add Rider rider, which will detail the terms/requirements of the rehabilitation.
- Escrows will include taxes, insurance, replacement reserves and Priority Repairs must be escrowed. A three-month debt service escrow is required for all transactions during the renovation phase. Upon completion of 40% of the renovation work, 50% of the escrow may be released. Upon completion of 80% of the renovation work, the remaining amount of escrow may be released. In addition to the completion requirements, the DSCR must be 1.25x or higher to qualify for release of escrow.
- For longer term ownership, cash-out is available provided a completion guaranty on budgeted improvements in an amount at least equal to the cashout in place.
- Maximum loan-to-purchase / loan-to-value (LTV) ratio: 85%.
- Minimum amortizing debt coverage ratios (DCR): 1.20x.
- Sizing based on a 7-year sizing note rate.
- Appraisal must include as-is and as-stabilized values; underwriting must support a 1.35x DCR and 75% LTV based on as-stabilized value supported by the appraisal.
- Standard Freddie Mac underwriting based on as-is income and expense.
- Refinance Test not required.
- No pro-forma underwriting of future performance.
- Rehabilitation must commence within 90 days of loan origination and be completed within 33 months.
- A scope of work is required. Budget may range from $10,000 – $25,000 per unit or $4,000 -$10,000 per bed. The budget must allocate at least 25% to interior improvements.
- Budget can be adjusted by as much as 20% without additional approval; up to 50% of the budget may be spent on unit interiors.
- Completion Guaranty or rehabilitation escrow required.
- Borrower/Servicer reporting required.
AT LOAN MATURITY/REFINANCE
- Final engineer review of work completion and quality is required.
- Refinance with Freddie Mac with no exit fee; otherwise 1% applies.
- Freddie Mac will re-underwrite the loan to then current property performance.
- One-year borrower extension option is available for a 0.5% extension fee, assuming no event of default.
- Additional Freddie Mac extension option is available thereafter with 1% extension fee.
Standard fees apply, including application fee and good faith deposit.
In its prequalifying review, Lument will attempt to estimate both the loan amount and the fees and costs associated with the transaction. Actual loan amounts and actual fees and expenses may vary from the prequalifying estimates. A prequalifying estimate is not a commitment to make a loan.