- Freddie Mac Student Housing loans give investors and developers the ability to build the housing needs of today’s students using low-cost loans, typically with key benefits, including flexible loan terms. These loans typically offer core benefits, such as a loan-to-value of up to 80%, in some cases. These loans allow for supplemental financing and offer a rate lock.
- These loans are typically for multi-tenant properties, such as apartment communities, designed specifically for college and university students. This custom financing option was first created in 2010 and, since that time, has originated more than $9 billion as well as securitized nearly $5 billion specifically for purpose-built housing loans.
Freddie Mac Student Housing Loan Highlights
- Must be a purpose-built student housing property
- This could be a stabilized garden, mid-rise, or a high-rise apartment type of property that is over half occupied by students
- The property must be under 2 miles from the college or on a public transportation route
- The supporting college must have at least 10,000 students, or, if the property is close to more than one college, the combined student body of both schools of over 8,000 is necessary (at that point, it is up to the lender to consider these properties)
- Must be a corporation, limited liability company, limited partnership, or tenancy in common (TIC) with under 10 tenants in common.
- In TIC, each tenant has to be a Single Purpose Entity (SPE).
- In some situations, general partnerships, real estate investment trusts, and limited liability partnerships may be allowable, as well as other types of trusts.
- The borrower is likely to be an SPE, though a borrower’s obtaining under $5 million may be a Single Asset Entity (SAE).
Loan Amount: Between $5 and $100 million, though loans of other sizes may still be considered.
Maximum Amortization: 30 Years.
Loan Terms: Range from 5 to 10 years, though it may be possible to secure them for as long as 30 years with a fixed rate loan, only if the loan is not for securitization.
Ground leases: It is possible to use these loans for a ground lease if the college owns the land, though prior approval of this is necessary.
Financing Options: Can be for the acquisition of the property or for refinance.
Lease Terms: Typically 12 month leases are best, though it may be possible to obtain a 9-month lease or higher with prior approval.
Lease Rules: Typically, these loans are for individual tenant lases by the apartment, bedroom, or by the number of beds. However, renting under the master lease, such as subleasing, is only allowable with prior approval.
Lease Guaranty: In most cases, a parental guaranty is necessary.
Maximum Loan To Value: This is dependent on multiple factors and ranges from 65 to 80%.
Escrow For Tax And Insurance: Typically required.
Reserve Deposit Requirements: Replacement reserve deposits are usually at a minimum of $150 for each of the bedrooms or $300 for the full unit.
Loan Recourse: Typically, these are non-recourse loans, but there are some carve-out provisions applicable.
Application Deposit: There is typically a $2,000 deposit required or 0.1% of the loan amount, depending on which is larger.
Advantages of Freddie Mac Student Housing Loans
- Interest Rates: Highly competitive interest rates for most loans.
- High LTV: Loan to value ratios as high as 80%.
- Non-Recourse: Loans are typically nonrecourse, protecting the investor.
- Locked Rates: Most offer early rate-lock access. In addition, index-lock and fast-track early rate lock are all typically available.
- Assumable: These loans may be assumable, though an application fee is associated with them.
- Supplemental loans are allowable with these loans
Disadvantages of Freddie Mac Student Housing Loans
- Reports Required: The Phase I Environmental Assessment Report is required. In addition to this, for those in Seismic Zones 3 and 4, there may be a need for a Seismic Report from a third-party provider. Some situations may also require an engineering report.
- Application Fee: Must be paid prior to moving forward, which could be $2,000 or 0.1%. There may also be lender application fees required, and between $8,000 and $12,000 in legal fees may apply.
- Fees: There is a 2% rate lock fee required, though this is typically refunded after the loan goes through.
Is it possible to use Freddie Mac student housing loans to cover residence halls and other community locations?
Typically, residence halls or other locations with multiple occupancy rooms that have a shared common bathroom along with food services, such as a dining call, are not covered under these loans.
Is there a pre-leasing reserve requirement?
In some situations, there is a pre-leasing reserve requirement during specific times and pre-leasing levels.
What are other property requirements?
Generally, these loans are for purpose-built student housing. They must include one bathroom for every two bedrooms within the unit. Additionally, each of the apartments must have its own separate full kitchen. The loans are for garden-style apartments, mid-rise, and high-rise buildings that are over 50% rented to student tenants.
How long does it take to obtain a Freddie Mac Student Housing loan?
Many factors play a role in this, but the typical process is between 60 and 75 days from the time that an application is submitted to the closing, though this may change based on other factors.
Is there a refinancing test?
In most situations, there is no need for amortizing loans with 1.4x DSCR as long as the loan to value is at least 65%. However, in the case of interest-only housing loans, there is the need for a refinancing test to be completed.
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