- Freddie Mac Senior Housing Loans are specifically designed to provide financial access to funds for the building of independent living properties, memory care properties, senior properties with skilled nursing access, and assisted living communities.
- They can be used for the acquisition of such properties as well as for refinancing those properties. There is no doubt these properties are in demand as the Baby Boomer generation reaches this age, but there are some restrictions and limitations on these properties that borrowers need to know about before investing.
Conventional Loan Highlights
- Those who are experienced owners or operators of senior housing communities (comparable facilities)
- Single Asset Entities (for those who are borrowing less than $5 million) though some restrictions apply. This is limited to limited partnerships, corporations, real estate investment trusts that are corporations, and general partnerships without general partners.
- For loans valued at $5 million or more, the borrower could be a limited liability company, limited partnership, or a corporation and must hold the status of Single Purpose Entities (SPEs)
- In situations of tenancy in common (TIC), each of the tenants must be SPEs (these are less common than other borrowers.
- Independent living properties
- Memory care properties
- Assisted living communities
- Properties that provide no more than 20% of NOI as skilled nursing
- Properties that combine any of the above property types
- Fixed rate loans
- Floating rate loans, standards, and capped
- Supplemental loans with approval
- FMAC loan programs, in some situations
Financing Options: Acquisition or refinance loans and Bond credit enhancements, with other options available
Replacement Reserve Escrow: Required in most situations.
Tax And Insurance Escrow: Required in most situations.
Spread Hold: These loans typically have a quoted loan spread held for 75 days starting on the day of the application being signed, with ample time to close the loan at quoted spreads.
Application Fee: An application fee of $5,000 or 0.15% of the loan amount is applicable.
Early Rate Lock: Typically required for extended periods.
Assumable: In most cases yes, but subject to a 1% fee and approval.
Refinance Test: The test is not required in situations where the loan to value is 55 percent or under and the amortizing debt coverage rate is the following: For independent living, it must be under 1.45x, for assisted living, it must be under 1.55x, and for assisted living communities with some skilled nursing, it must be under 1.60x.
Estimated Legal And Closing Fees: These vary but are typically between $17,500 and $25,000
Advantages of Freddie Mac Senior Housing Loans
- Interest Rates: Very low and highly competitive interest rates.
- High LTV: The loan to value could be as high as 75 percent for some properties.
- Flexible: Supplemental loans are allowable.
- Mixed Use: It can be used on mixed-use properties
- Early Rate Locks: Available for many properties and for an extended amount of time. This includes Freddie Mac’s early rate-lock option and the index lock option. Borrowers may also tap into the extended rate locks for 45 to 365 days prior to closing.
Disadvantages of Freddie Mac Senior Housing Loans
- Replacement Reserves: The loan does require access to replacement reserves.
- Requirements: A senior liability assessment is a requirement in most cases.
- Application Fee: There is a substantial application fee for these loans of $5,000 or 0.15%, which can be costly.
- Third-Party Reports: There are potentially third-party reports necessary, including the Phase I Environmental Assessment.
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What Is Freddie Mac Senior Housing?
The Freddie Mac Senior Housing Loans could be a good option for investors looking for a low-cost way to purchase senior housing properties. These loans are available for independent living communities, assisted living communities, memory care locations, as well as some communities that offer limited skilled nursing services, though this is the least common option.
These loans provide financing for a range of facilities to meet the needs of seniors who may need a bit of help with day-to-day tasks or may live independently but still need support for caring for their homes. Several key factors make these loans an attractive option including that they offer fixed rate and variable rate loans at a 5 to 10 year term, with up to 30 year terms available. These are also non-recourse loans, which frees the borrower from many of the typical risks associated with borrowing. For many projects, this loan product can provide the flexibility needed for quailed borrowers to obtain financial support.
Is it possible to use these loans on mixed-use properties?
There are opportunities to use these loans for the purchase of mixed-used properties though there are some limits to this. Senior housing properties, for example, cannot get more than 20 percent of their Effective Gross Income from any type of commercial use of the property. More so, that commercial space cannot make up more than 20 percent of the overall square footage.
How long does it take to secure a Freddie Mac Housing Loan?
While this may differ from one location to the next, there are some expectations here. Most of these loans close between 60 days and 90 days once the pre-screening process has been started. For repeat borrowers, this can be much faster, often within 30 days to 60 days.
What is the maximum LTV and Minimum DSCR?
This is where these loans get a bit more confusing. For independent living properties, loans that range from 5 years to 7 years that are amortizing have a 75%/1.30x. For partial term interest-only loans, this is 70%/1.30x. The terms differ based on the type of property as well as the type of loan (amortizing, partial term interest only, or full term interest-only loans).