Guest Speaker: Geoffrey Platt, VP Originator of Arbor Realty Trust

Non-Recourse Financing for Small Apartment Purchases (and related topics)

Geoffrey Platt joined Arbor in 2010 and is responsible for originating FNMA, Freddie Mac, HUD, CMBS and Bridge loans. In addition, he oversees The Arbor Select Program (ASP), a rigorous and comprehensive development curriculum for sales careers at the Company. Prior to joining Arbor, Platt was a Real Estate Assistant Manager at Pomander Associates LLC, a family-based real estate business. During his tenure, he identified acquisition opportunities, developed post-acquisition profit improvement strategies and repositioned underperforming assets. Previous to that position, Platt spent several years at Bear Stearns & Co., holding multiple management trainee positions within Fixed Income Trade Support, Derivatives Client Servicing, and Prime Broker Trade Support. He earned a Master of Science in Real Estate from New York University and a Bachelor of Arts in Economics from Brandeis University.

What you’ll learn about in this tele-seminar:

*Why there’s no better time to be buying apartment buildings than right now

*How to get Lance’s bestselling book “How To Make Big Money in Small Apartments” for free!

*Geoffrey’s nine year history at Arbor, starting with being an analyst on the underwriting and credit side, then sales and origination and now helping clients structure deals

*The definition of an “agency loan” and the different lending programs of Fannie Mae, Freddie Mac and HUD

*Arbor’s latest accolade: for the 12th year running, it was a Top Ten Fannie Mae lender, Top Five small balance lender and Top Five Green Fannie Mae lender.

*Small balance loans – Fannie Mae’s minimum loan balance starts at $750,000 and maxes at $5 million; Freddie Mac’s starts at $1 million and maxes at $7.5 million

*How they define multi-family property: five units or more

*The difference between a recourse loan and non-recourse loan. Recourse means you are personally liable for the loan. Non-recourse means you are not – even if the loan goes bad

*All agency loans (Freddie, Fannie, HUD) are non-recourse

*Definition of a “bad boy carveout” – when the lendee misrepresents information

*Why Geoffrey and Arbor are in the business of working things out even when a property that was purchased with a loan is struggling

*The varying length of loans. Generally, 30 years across the board, but as short as five years.

*An explanation of “prepayment penalties” which allow you to not be locked into a 30 year fixed loan for 30 years – allowing for great flexibility

*The general down payment requirements – usually 20% – and the slight variations between Fannie and Freddie on these. Freddie breaks down the country into smaller markets which can lend from 70-75% of the price. Top markets = major cities, smaller markets – rural areas

*Why Freddie Mac updates their market guidelines every quarter depending on how many deals are happening in different markets

*Someone looking for a loan must go through a direct lender, not to Freddie or Fannie directly

*The requirements of a sponsor – a net worth equal to or greater than the proposed loan amount, liquidity equal to or greater than 12 months of TNI on the proposed loan and a solid credit score

*Minimum credit scores for Fannie (680) and Freddie (650)

*Why Freddie demands that you need to be local (within 100 miles) to your property; if you’re non-local you need a third party management company

*Where they obtain the credit score from – Equifax, FICO, etc. Your score is the average of those obtained from three agencies.

*Those with zero years of ownership and management experience must bring in a partner or have a third party manager – and be local

*You and your partner combined must have a net worth greater than the loan amount – even if you’re not going in 50-50 on the property

*The many items and assets that constitute net worth

*The essential reason behind the heavy requirements: the non-recourse nature of the deal. They want to make sure the property and the mortgage perform

*The “90 for 90 rule” – you need 90 percent physical occupancy for 90 days prior to closing

*The ins and outs of refinancing – generally speaking, there is a max 75% loan to value on refi cash outs

*Why the agencies are pushing green product and affordability in 2019 – affordability meaning if rent falls below a certain threshold of area median income, resulting in pricing breaks on your rate, which can result in higher proceeds on the loan

QUESTIONS ASKED BY PARTICIPANTS AND ANSWERED BY GEOFFREY:

*What does HUD consider a small business loan? (There’s no threshold, but HUD loans are not generally cost effective, plus they take longer than Fannie or Freddie loans)

*How long does it take to close a deal? (Usually 60 days from start to finish)

*Can you hire a relative to manage property? (Yes if they have experience in managing apartment complexes)

*Is your loan program for multi-family only or commercial as well? (Fannie, Freddie and HUD are strictly multi-family. However, Arbor has a CMBS platform and bridge platform to finance commercial assets)

*Can the seller take a second for the downpayment? (Fannie, Freddie and HUD do not allow second mortgages unless it’s a Fannie or Freddie loan)

*What are the liquidity requirements? (We are generally looking for a post-closing, or an acquisition post-closing after a down payment. We’re looking for 12 months or greater of principal and interest payments on the proposed loan.)

*Which loans are considered the sweet spot for agency loans? Is there a range? (There is no sweet spot. Every loan caters customized for each client of mine and they all have their sweet spots for me.)

*Can a self-directed IRA be used for the down payment? (I don’t mind where the money comes for the down payment, but we cannot use that fund as liquidity towards your liquidity. But generally you can use a self-directed IRA as your investment. But be careful you are not self- dealing and consult your IRA custodian)

*What is a bridge loan? (It’s a loan that literally bridges you from a not qualified to qualified for a permanent loan. It’s anywhere from a year to max three year terms. They are not structured well for small balance loans.

*If we’re at an age where we can withdraw from 401k’s without penalty, can we use that towards liquidity? (You must take it out of the 401k. It is technically liquid but you can’t if it’s still sitting in the account).

*Can you finance Canadian citizens with no U.S. credit scores (Fannie Mae does not technically allow this, but Freddie Mac does allow loans to non-U.S. citizens as long as they show double net worth and double liquidity

*Do balloon term loans have a grace period at the end of the term loan to refinance the balloon loan? So when you get a balloon, what is that hard deadline? (All of our loans have a grace period. There are two different prepaid terms, the yield maintenance option and the step down prepay. Either option has 90 days. Then you have three months at the end of your term where it’s open to refinance

Resources:

http://arbor.com

Gplatt@arbor.com

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