FYI, missing middle construction was declining long before the 2008 recession- it started going downhill in the late 80s (even before the savings and loan crisis) and kept going down afterwards. https://fred.stlouisfed.org/series/COMPU24USA
In addition to the debt sources you described, we are seeing more private lenders offering 30 year loans based upon the cash flow of the building after operating expenses. These loans are based upon the Debt Service Coverage Ratio (DSCR). A DSCR of 1.30 means that after paying for operating expenses and capital reserves the rents paid provide $1.30 for every $1.00 need to pay the mortgage. DSCR lenders will underwrite the loan with two different levels of fees and interest rates, depending upon the mortgage being a recourse loan (personally guaranteed by the developer and their investor), or as a non-recourse loan with no personal guarantees.
You can typically get a DSCR loan for 2-4 points in fees and an interest rate at a 1% to 3% above a Community Bank’s underwriting, or that of a Fannie Mae or Freddie Mac loan. Community Bank mortgages on small Multifamily properties are often 5, 10, year loans with 25 or 30 year amortization.
These DSCR lender is doing their underwriting focused upon the asset, and much less on the borrower’s credit score, balance sheet, and liquidity.
As to the issue of comparable properties for the appraiser, we typically retain a good local appraiser as a consultant to review our draft loan application. The cannot provide the appraisal for the lender because they have been retained as the developer’s consultant. Their job is to translate the information in the developer’s application into the native dialect of their fellow appraiser. They can be particularly helpful in crafting the project description and in providing supplemental information on the comparable properties. If you would like to discuss this further. You can reach me at. John@rjohnconsulting.com
FYI, missing middle construction was declining long before the 2008 recession- it started going downhill in the late 80s (even before the savings and loan crisis) and kept going down afterwards. https://fred.stlouisfed.org/series/COMPU24USA
This is extremely useful, thank you, Michael!
In addition to the debt sources you described, we are seeing more private lenders offering 30 year loans based upon the cash flow of the building after operating expenses. These loans are based upon the Debt Service Coverage Ratio (DSCR). A DSCR of 1.30 means that after paying for operating expenses and capital reserves the rents paid provide $1.30 for every $1.00 need to pay the mortgage. DSCR lenders will underwrite the loan with two different levels of fees and interest rates, depending upon the mortgage being a recourse loan (personally guaranteed by the developer and their investor), or as a non-recourse loan with no personal guarantees.
You can typically get a DSCR loan for 2-4 points in fees and an interest rate at a 1% to 3% above a Community Bank’s underwriting, or that of a Fannie Mae or Freddie Mac loan. Community Bank mortgages on small Multifamily properties are often 5, 10, year loans with 25 or 30 year amortization.
These DSCR lender is doing their underwriting focused upon the asset, and much less on the borrower’s credit score, balance sheet, and liquidity.
As to the issue of comparable properties for the appraiser, we typically retain a good local appraiser as a consultant to review our draft loan application. The cannot provide the appraisal for the lender because they have been retained as the developer’s consultant. Their job is to translate the information in the developer’s application into the native dialect of their fellow appraiser. They can be particularly helpful in crafting the project description and in providing supplemental information on the comparable properties. If you would like to discuss this further. You can reach me at. John@rjohnconsulting.com