Freddie Mac Lease-Up Loans
Getting a property through the lease-up period can be a challenge. Fortunately, Freddie Mac Lease-Up Loans provide non-recourse fixed and variable-rate financing options, have a 12-month interest-only period, and offer LTVs up to 75%.
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If you've just built, or are considering purchasing a new multifamily development, getting your property through the lease-up period can be a significant challenge. Fortunately, Freddie Mac has designed a loan specifically to help investors succeed during lease-up; the Freddie Mac Lease-Up Loan.
Freddie Mac Lease-Up Loans allow for both the acquisition and refinancing of newly constructed multifamily properties, offer fixed and variable-rate options, and have a 12-month interest-only period, making them ideal for properties that don't yet have a strong stream of rental income. Plus, these loans are non-recourse, offer LTV allowances of up to 75%, and, like many other Freddie Mac Multifamily loans, permit eligible mixed-used properties.
To learn more, check out Freddie Mac’s official Lease-Up Loan Product Sheet or keep reading below for an in-depth explanation of the Freddie Mac Lease-Up Loan program.
Sample Freddie Mac Terms for Lease-Up Loans in 2023
Size: Varies, typically similar to Freddie Mac Fixed-Rate Loans or Floating-Rate Loans
Use: Acquisition or refinance of newly constructed multifamily properties
Terms: 5-10 years (Up to 30 years if loan not purchased for securitization)
Amortization: Up to 30 years, interest-only loans available
Refinances:
Conventional and Targeted Affordable: 75%/1.30x
Seniors Housing with Independent Living: 70%/1.35x
Seniors Housing with Assisted Living: 70%/1.45x
Acquisitions:
Conventional and Targeted Affordable: 70%/1.30x
Seniors Housing with Independent Living: 70%/1.35x
Seniors Housing with Assisted Living: 70%/1.45x
Minimum Cash Equity Requirement:
Refinances:
Conventional and Targeted Affordable: 15%
Seniors Housing Independent or Assisted Living: 20%
Acquisitions:
Conventional and Targeted Affordable: 25%
Seniors Housing Independent or Assisted Living: 25%
Recourse: Non-recourse with standard “bad boy” carve-outs
Eligible Borrowers: Must have experience with new construction/lease-up properties, should also have strong financial capacity and a good credit history.
Eligible Properties: Conventional, Targeted Affordable, or Seniors Housing properties. No Student Housing or Manufactured Housing Communities allowed. Stabilization is expected within 12 months of closing.
Prepayment Options: Yield maintenance until securitization, 2-year lock-out period following securitization, defeasance allowed after securitization. Yield maintenance for securitized loans is permitted for an additional fee. No pre-payment premiums required in the last 90 days of the loan.
Rate Lock Requirements: Must have at least 50% of units occupied, 60% of units leased, and 60% or more Certificates of Occupancy issued
Closing Requirements:
Refinances:
1.05x DSCR
65% of units must be occupied
75% of units must be leased
100% of units must have Certificates of Occupancy issued (Conventional and Targeted Affordable)
90% of units must have Certificates of Occupancy issued (Seniors Housing with Independent Living and/or Assisted Living)
Assisted Living properties must have all required licenses authorizing operations
Acquisitions:
1.0x DSCR
65% of units must be occupied
75% of units must be leased
100% of units must have Certificates of Occupancy issued (Conventional and Targeted Affordable)
90% of units must have Certificates of Occupancy issued (Seniors Housing with Independent Living and/or Assisted Living)
Assisted Living properties must have all required licenses authorizing operations
Lease-Up Credit Enhancements:
Freddie Mac requires all a Lease-Up Credit Enhancement for all Lease-Up Loans
The Lease-Up Credit Enhancement must be:
At least 5% of the unpaid principal balance
At least 10% of the unpaid principal balance if the Lease-Up Credit Enhancement is a guaranty (these are also subject to additional conditions)
The Lease-Up Credit Enhancement will be released once the property has reached the required amortizing DSCR (typically 1.25x) for at least 3 months (and has met other conditions set forward by Freddie Mac)
If the property cannot meet the DSCR requirement within 1 year, the loan will be resized and the payments recast (using the Lease-Up Credit Enhancement)
Advantages:
Loans are non-recourse
LTVs of up to 75% allowed
Eligible mixed-use properties supported
Permits borrowers to get a rate lock before a property has reached stabilization
Additional loan flexibility may be available on an individual basis, especially for premiere sponsors and markets (Seniors Housing not eligible)
Some loans for premiere sponsors/markets may not require Lease-Up Credit Enhancement
Disadvantages:
Appraisals must include both the as-is and stabilized value of the property
Some lenders may not fund Seniors Housing Lease-Up Loans
Some lenders may mandate an up to 30% Cash Equity Requirement
Properties must be at least 90% occupied and achieve a 1.25x amortizing DSCR at stabilization (over a 3-month consecutive period)
Lease-Up Credit Enhancement required until properties reach the required amortizing DSCR (also typically 1.25x) for at least 3 months