Freddie Mac has announced an expansion of the Link Loan component of its Small Balance Loan, or SBL, financing program. The update, effective Nov. 1, 2022, now allows the program to cover financing for multifamily buildings of two to four units, even if they are not contiguous.
It also expands market coverage. Previously, linked loans were allowed only in top and standard markets as defined by Freddie®. Now, the program can be utilized in any market nationwide.
This means that, even in Greenville, S.C., a three-unit apartment building down the street from a seven-unit complex can qualify for a Freddie Mac SBL loan. Previously, this loan would only have been available if the buildings’ parcels bordered each other. Under the new guidelines, regardless of the number of buildings, they should all be within 3 miles of each other — though distances of up to 5 miles may be considered on a case-by-case basis.
This change may not mean all non-contiguous properties are covered, however. Freddie Mac provides a list of criteria, outlined below.
Minimum Loan Amount
The minimum loan amount for a Freddie Mac SBL Link Loan is $2 million, regardless of the number of units. Compare this to the standard Freddie SBL minimum of $1 million.
Minimum Units and Configuration
There must be at least 10 units in the portfolio to qualify. For each component of the portfolio, note that one-unit buildings which are not contiguous are expressly excluded from the program.
Let’s illustrate with an example. If a portfolio includes three non-adjacent three-unit buildings, plus a one-unit structure located a short distance from one of the other buildings, this property would not qualify for a Freddie SBL Link Loan. If, however, the one-unit building is on a parcel that borders one of the others, it would meet the criteria.
Note that, regardless of the configuration and number of units, a fractured condominium property will not qualify under this program.
The borrower must provide financial reports that are aggregated. In other words, any reports must treat the individual buildings as one property, rather than a number of separate ones. Financial reporting must also be in line with Loan
This requirement also applies to the appraisal and the property condition assessment. The structures must all be considered one property.
As mentioned above, the physical structures are not restricted to certain markets. However, there are some criteria that must be met.
First, all buildings must be within 3 miles of each other. Some exceptions up to 5 miles may be permitted by Freddie Mac.
Second, the buildings must all be located within the same county, and, by extension, within the same state. This could be particularly of note for multifamily investors with properties in metros intersected by county or state lines — think Kansas City, Charlotte, N.C., or Louisville, Ky., among many others.
Property Management, Owner Occupancy
In order to qualify for a Freddie Mac SBL Link Loan, all buildings must be managed by the same property manager. This ensures the consistent property management standards for the encumbered units, something that is a focus of the SBL program.
Another point the new guidelines mention is that no unit within the property may be occupied by the owner.
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- The Freddie Mac Small Balance Loan (SBL) program is one of Freddie’s most popular apartment lending programs. The SBL program offers apartment financing in amounts from $1 million to $7.5 million.Learn more →