Freddie Mac Small Balance Loans for Seniors Housing and Assisted Living
Non-recourse seniors housing financing from $1–$7.5 million
ADVANTAGES OF A FREDDIE MAC SMALL BALANCE LOAN FOR SENIORS HOUSING
- Small Balance Loans are designed specifically for smaller senior housing properties.
- Interest rates are set by Freddie Mac and are highly competitive.
- The debt is secured by the property, so personal guarantees are not required.
- You can typically borrow up to 80 percent of the property’s value.
- If you choose, you can make interest-only payments for part or all of the seniors housing loan term.
$1,000,000 – $6,000,000. With Freddie Mac approval, loans between $6MM and $7.5MM are available in Top and Standard Markets for properties with 100 units or less.
5+ unit multifamily. No restricted markets; however, eligibility may vary for sub markets considered as being higher risk. Non-contiguous properties (Linked Program) are acceptable if they are being operated as one and each property meets the minimum LTV, DSCR, and occupancy requirements. Residential commercial mixed-use properties are eligible if gross rents and gross rentable sq ft are less than 40% of the total gross.
Properties with a HAP contract or LURA are eligible on a deal by deal basis. Section 8 voucher acceptable. Properties with a specific tenant concentration (e.g. students, military) greater than 25%. Tenant concentration greater than 25% but less than 50% eligible on an exceptions basis.
 There are four Market Tiers under the Freddie Mac SBL program. Every county in the country is designated as a Top, Standard, Small, or Very Small Market. In general, counties in larger cities are designated as Top or Standard Markets while counties in smaller cities are designated as Small or Very Small Markets. Further, Tier designation is based on the size of the rental population, determined by the Census Bureau, and not necessarily the population.
 There are five Regions (Western, South Central, North Central, Southeast, and Northeast) under the Freddie Mac SBL program. Interest rates vary slightly by Region.
 5, 7 and 10 years.
5 year fixed + 15 year ARM.
7 year fixed + 13 year ARM.
10 year fixed + 10 year ARM.
Index: 6 month LIBOR.
Interest rate floor equal to start rate.
Lifetime cap set at 500 bps above the start rate.
1% periodic rate adjustments every 6 months.
30 years.
 1.20-1.40 depending on Market Tier.
No underwriting floor rate.
 75%-80% depending on Market Tier.
85%-90%.
1 year for 5 year fixed term.
2 year for 7 year fixed term.
3 year for 10 year fixed term.
Full term for loans with a DSCR > 1.40 and LTV < 65%.
Actual/360.
 Yield maintenance or declining prepay options.5 year fixed term: 5,4,3,2,1. It can be reduced with rate increase.
7 year fixed term: 5,5,4,4,3,2,1. It can be reduced with rate increase.
10 year fixed term: 5,5,4,4,3,3,2,2,1,1. Can be reduced with rate increase.
1% prepay during ARM term – can be waived if selling the property or refinance with a Freddie Mac.
 Non-recourse subject to standard carve-outs.
Yes, subject to lender approval and a 1% assumption fee.
Real estate tax escrow deferred for loans less than 65% LTV. Insurance escrow deferred. Replacement reserves deferred.
Not required.
Not permitted.
 At application.
650 minimum credit score. The collective net worth of key principals must exceed the loan amount. Minimum liquidity of nine months of debt service. Local ownership no prior multifamily experience required. Non-local ownership requires a one-year comparable multifamily ownership experience. Exceptions available in Top, Standard, or Small Markets if non-local with strong mitigates. Foreign nationals with 2x program minimum net worth and liquidity and have US multifamily experience
Single asset entity required. Trusts and corporations only eligible on an exception basis. Tenants in Common (TIC) eligible with no more than 5 co-tenants and each co-tenant is a single asset entity
Any member or limited partner with more than a 25% interest in the borrower. All managers of the borrowing entity. All general partners of the borrower
Obtaining HUD, Freddie and Fannie, USDA non-recourse financing for Seniors Housing Properties can take longer (6 months to a year) than conventional loans but the benefits often outweigh the delay factor. Please contact us if these loans interest you and we will guide you through the process.
Final Considerations
In addition to strong personal credit, the lender will be interested in the following elements when examining a loan request for seniors housing.
- Positive Trend. Nothing scares lenders more than negative sales and earnings trends in a business or its industry. Conversely, a pronounced positive trend is a thing of beauty to a lender. They may look back several years to see how the business performed through past economic cycles.
- Business Plan. Buyers are required to submit a basic business plan for the senior care business they are acquiring. Lenders want to see an intimate understanding of the business and industry. In most cases, a plan calling for modest growth and incremental change is the safest bet.
- Continuity. Commitments by existing managers, key personnel, suppliers and customers to continue with the new owner represent a reduced risk to a lender.
- Seller Training. Lenders want to see a well-thought-out management transition plan. A training/transition period to the new owner could be anywhere from 1 to 12 months. Be sure to negotiate this point upfront and clearly spell it out in the purchase agreement.
- Seller Financing. When a seller agrees to finance even 10-15% of the deal, (subordinated to the banknote) it shows the lender that the seller is confident in the business under the new buyer’s leadership and it shows commitment from the seller to make the transition work. This condition is commonly imposed by lenders.
Whether you are looking to purchase or refinance an independent or assisted living facility or business, develop a new senior housing facility, or expand your current senior housing business, loans are readily available. Let us guide you through the process and help position you for a successful loan approval.
