So Who's Financing Apartments?

The final results of all apartment sales transactions for 2009 have been tabulated.

The CoStar Group identified 65 arms length apartment transactions that took place along the I-5 corridor from Kelso, Washington to Eugene, Oregon including Bend that were $1,000,000 or more in size.

As a mortgage broker my primary interest is who financed these 65 transactions and do I have access to these lending sources?

The results are both surprising and predictable:

Thirty percent of all the sales transactions were either all cash buyers, seller financed or private individuals.

That seems like a huge percentage! I wonder how that compares to previous years? My guess is that this percentage is substantially higher than a typical year when financing is readily available.

The federal agencies, Fannie Mae, Freddie Mac and HUD comprised 24% of the financing for apartments.

Fannie Mae was the primary lender of the three but Freddie Mac’s strategy was to do the larger transactions so loan volume between the two was very similar.

Even with the 35 year fully amortizing loan with no balloon and a reasonable step down prepayment penalty HUD could not overcome the negatives of financing with them: 6 to 9 months to close, and substantially higher closing costs.

Local and regional banks totaled 34% of the financing for apartments. This did not come as a surprise to me.

If a borrower wants a five year fixed rate loan, 30 year amortization at a reasonable rate it’s the banks that will be the most likely to come through.

But the key is to know which banks are the most competitive.

Surprisingly, no apartment sales were financed by the life companies. When it comes to apartment financing, life companies are generally not competitive with Fannie Mae or Freddie Mac.