Industry Commandment No. 1: Know the Facts.

Multifamily housing financing can sometimes be confusing. Ask just about any seasoned property management professional and you'll get at least one statement of frustration, from, "It's almost impossible to get a loan for more than $5 million," all the way to, "No one will even consider a loan for less than $1 million."

Once a property owner finds a lender for a project, there's no guarantee that it'll be around for the next loan. Multifamily housing lending is constantly in flux, with the rules changing as fast as interest rates.

To succeed in the industry, an understanding of financing and financing options is a necessity. Finding and securing the best rates and the most appropriate loan can be crucial to the success of a property. After all, if the money's not right, the development or acquisition can't happen.

It would be impossible to write a primer to finance for multifamily professionals. The financial and multifamily housing industries change too frequently to make any such publication worth its weight for very long. But, experts say, there are some basic guidelines that apply no matter what the current business climate may be.

What to Ask

Howard J. Levine, president and chief executive officer of ARCS Commercial Mortgage, a Fannie Mae DUS lender, says that while the financial world can seem pocked with landmines, finding basic information can make the journey to a successful deal much less perilous for property owners.

In the current market, he says, the first thing borrowers need to learn about is financial industry consolidation. "Even though you may have gone to a particular lender a year ago or six months ago," he says, "They may not be the most appropriate lender today. So the first thing you need to do is get to know your lender. Are they the most competitive in today's environment? ... The market is changing rather rapidly."

Established lenders such as Fannie Mae and Freddie Mac continue expanding their product lines, and other financiers are following suit. To be sure that a particular loan is the most appropriate for a specific property, it pays to do homework and find out exactly what is being offered by a given lender or group of lenders.

"The borrower should be very clear as to the advantages and disadvantages of what's out there," Levine says.

Beyond that, Levine recommends that property owners educate themselves in specific areas. When considering a loan, he says, be sure that lenders give you answers before you sign.

Rate

Borrowers should ask when their interest rate will be locked up, Levine says. Interest rates are creeping up after a long period of historic lows, and knowing exactly when a rate is locked in can make a significant difference in the monthly payment.

Costs

Transactions have costs beyond just loan payments, including legal fees, appraisal fees, environmental testing fees, and other costs. Levine recommends that buyers get an exact breakdown of what costs will be involved in their financing and avoid potentially expensive surprises down the road.

Processing Time

"Make sure the buyer understands who can deliver in what time frame," Levine says. In other words, find out exactly when the loan will be finalized. Some transactions have time constraints, and signing with a lender who can't make those deadlines could be disastrous.

Lender Responsibilities

Different lenders hold different responsibilities when it comes to closing a deal. Levine recommends that the, "borrower know how much of the paperwork and decision-making lies in the lender's hands." He recommends finding out if a loan decision has to go to a third party for approval or stays with the single lender. "It can add complications to the transaction," he says.

Additionally, he says, borrowers should make sure that they're comfortable with the experience level of their lender's staff. Find out if the lender is familiar with the economics of a proposed property's geographic area.

"It doesn't make sense to go with a lender in, say, New York, if the property isn't in New York," he says. "Make sure your lender has experience in that particular area."

Lender Reputation

"Reputation is critical" Levine says. Property owners should carefully screen potential lenders to ensure a reputable lender and a good match for the property.

Hand-in-hand with that is finding a lender with specific expertise in the appropriate loan size. If a property owner is looking for a smaller loan, they should seek out a lender who specializes in that type of loan. The same goes for larger amounts.

"Some lenders are experts at smaller loans, and some are experts at larger loans," Levine says.

Above all, Levine says, asking questions is key to finding a lender who makes a good match for a particular property or property owner.

Smaller Portfolio Owners, Special Needs

For those seeking loans of less than $1 million, finding financing can be a challenge. A new loan program recently unveiled by Fannie Mae may be the answer for some property owners.

The 5-50 Streamlined Mortgage was designed for properties of five to 50 apartment homes, and is meant to reduce the cost and time involved in financing such properties. The loan should reduce transaction costs for third-party reports, give the borrower zero in out of pocket costs, streamline underwriting requirements, simplify processing, and reduce data submission requirements.

"We looked at what some of the barriers were for financing smaller properties," says Marianne Sullivan, Fannie Mae vice president for multifamily financing. "Small loans have a high concentration in urban and rural markets. We wanted to make sure that we focused on reducing the costs for the borrower, and help smaller borrowers have access to Fannie Mae funds. So we took a blended single family/multifamily approach and made the requirements easier."

Currently, 10 Fannie Mae DUS lenders are offering this program in most U.S. markets. Designed for those who are purchasing for the first time and those who are refinancing, the loan does require some proof of relevant experience from the borrower.

"We certainly want borrowers to gain experience managing smaller properties before they move up," Sullivan says. "Financing is definitely available to all borrowers, but we like to see some relevant experience in multifamily."

Gathering all the facts and doing your homework are obviously the best things to do when considering multifamily financing.

Kim Fernandez Ms. Fernandez is a freelance writer for trade and consumer publications who lives in Bethesda, Md. A former managing editor of Units, she has written about the multifamily housing industry since 1984.