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Fannie Mae Structured ARM Loans
Fannie Mae Structured ARM Loans, or SARMs, are designed to finance large apartment and multifamily properties. SARMs start at a minimum of $25 million, are non-recourse, and permit LTVs up to 75% and DSCRs as low as 1.00x.
If you're a multifamily investor looking for a large, adjustable-rate loan for an apartment building or multifamily property, a Fannie Mae Structured ARM could be an ideal fit.
With a minimum loan amount of $25 million, the Structured ARM is designed to finance large multifamily properties, and, with a generous minimum DSCR requirement of 1.00x (at the maximum interest rate), many multifamily investors are finding that Fannie Mae Structured ARMs have the flexibility they need. Plus, Structured ARMs are fully non-recourse and are fully assumable with lender approval and a 1% fee.
To learn more, check out our official Fannie Mae Structured ARM Product Sheet or keep reading below for an in-depth explanation of Fannie Mae’s Structured ARM loan program.
Sample Fannie Mae Terms for Structured ARM Loans in 2024
Size: $25 million minimum loan amount
Terms: 5, 7, or 10 years
Amortization: Up to 30 years
Interest Rate: Based on the 1-month or 3-month SOFR, both convertible and non-convertible options are available
Interest Rate Cap: No built-in caps, borrowers need to purchase an interest-rate cap from an approved provider. Initial interest rate caps must be at least 4 years, but, if the interest rate cap is smaller than the loan term, the borrower must put funds in escrow monthly for the next cap.
Maximum LTV: Up to 75%
Minimum DSCR: 1.00 (at max. interest rate)
Recourse: Loans are non-recourse with standard “bad boy” carve-outs
Prepayment Options: 1 year lockout, then a 1% prepayment premium or declining prepayment premium
Occupancy Requirements: 85% physical occupancy, 70% economic occupancy
Commercial Space Limits: Commercial space must be no more than 35% of the net rentable area and must produce no more than 20% of the property's income
Eligible Properties
Properties must be stabilized; can include market rate, affordable, student housing, military housing, seniors housing, and manufactured housing community properties
Advantages
Competitive interest rates
Loans are non-recourse
Requires third-party reports including a property appraisal, property condition assessment, and a Phase I Environmental Assessment
Requires replacement reserves (minimum of $250/unit per year)
$12,500 application deposit and $3,000 processing fee required
1% origination fee also required
Does not allow for supplemental financing before conversion to a fixed-rate loan
Only 30 day rate lock commitments are available
Disadvantages
Case Study: Unlocking Capital in Miami
Let's turn our attention to Carlos, an accomplished multifamily property investor based in Miami, Florida. Carlos has an impressive real estate portfolio that includes a variety of property types across the city. However, his prized asset is a large, market-rate apartment complex located in Miami's vibrant Brickell neighborhood.
This property is comprised of a single, impressive 30-story building with 300 units. The complex, known for its breathtaking ocean views and modern amenities, is a coveted living spot in the heart of the city, ensuring a consistently high occupancy rate.
Carlos had acquired this property a decade ago for $60 million with a loan-to-value (LTV) of 70%, equating to an initial loan of $42 million. The property's value had since appreciated substantially, estimated currently at $90 million, providing Carlos an opportunity to refinance and unlock capital for further investments.
After an in-depth evaluation of various options, Carlos decided on Fannie Mae's Structured ARM loan, specifically tailored for large multifamily properties like his. This loan offered a minimum loan amount of $25 million, well suited to Carlos's needs.
With an LTV limit of up to 75%, Carlos was able to secure a refinancing loan of around $67.5 million based on the property's current value. The loan term options of 5, 7, or 10 years, along with a potential 30-year amortization period, perfectly matched Carlos's long-term investment strategy. Moreover, the non-recourse nature of the loan was another attractive feature, limiting Carlos's personal liability.
The flexibility to base the interest rate on either the 1-month or 3-month SOFR, with convertible and non-convertible options available, offered Carlos the adaptability he sought in an ever-changing market.
The loan did come with a few challenges, including the requirement of third-party reports, a sizable application deposit, and an origination fee. However, Carlos deemed these as necessary steps towards securing a loan that fell perfectly in line with his investment strategy.
Through the Fannie Mae Structured ARM loan, Carlos successfully refinanced his high-value apartment complex, paving the way for his continued success in Miami's booming rental market.
This is a fictional case study provided for illustrative purposes.