Freddie Mac bought his first multi-family loan, which is linked to the Secured Overnight Financing Rate. The deal was arranged by CBRE.
As part of its direct loan program as Freddie Mac Optigo Lender, the brokerage firm arranged to refinance a $ 20 million bridging loan for Vintage Apartments, an apartment building with 292 units in the Brookhollow / Inwood neighborhood of Houston, Texas. The loan was taken on by Freddie Mac late last month.
SOFR, an interest rate that banks use to rate prices in US dollars Derivatives and loans replaces LIBOR, the long-term reference rate used worldwide.
The 10 year floating rate loan, indexed to SOFR, was made to two Houston-based commercial real estate investment firms and the deal was closed by CBRE's office there. Borrowers bought a SOFR-indexed rate cap that cost three basis points more than a LIBOR-based cap.
The loan also uses the first SOFR-based hedge (interest rate cap) to mitigate future index hikes. Freddie Mac and all variable rate loan lenders require an interest rate cap to reduce the potential for the SOFR index to rise over time, thereby increasing the borrower's principal and interest payments. For example, with the Vintage Apartments loan, the SOFR index return at closing was 0.09% and the borrower acquired a SOFR interest rate cap with a maximum return of 2.00%.
"By leveraging Freddie Mac and Fannie Mae's new SOFR-indexed floating rate loan programs, a sponsor can achieve very attractive cost of capital, typically in the 2.5-3.0% range for loans with an LTV of 70% and above ", he said Mitchell Kiffe, Senior Managing Director, Capital Markets, CBRE, "while maintaining exit flexibility at a very low cost, typically 1% of the loan value."
The transition to SOFR began in 2018 when global financial regulators realized that LIBOR should be replaced with a more reliable and transaction-based index. Freddie Mac and Fannie Mae will stop buying all LIBOR-indexed multi-family and single-family loans by year-end, and both agencies are now buying SOFR loans.
Including the loan for the Vintage Apartments, CBRE has completed five SOFR loans totaling US $ 118 million and has applied for 45 additional loans from Freddie Mac and Fannie Mae for a total of over US $ 1.4 billion.