As Lenders Invoke the MAC Clause, Savvy Borrowers Exercise Their Options
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Loan commitments issued by commercial real estate lenders often include a ‘Material Adverse Change’ clause, commonly known as a “MAC”.
This clause allows the lender to change the terms of the loan or even withdraw the loan commitment altogether if one or more of the assumptions upon which they first agreed to make the loan changes. Borrowers see the MAC as giving the lender the opportunity to back out of their commitment if there is some significant change in the underwriting or in the financial strength of a guarantor. While MACs are used this way, they are often more broadly interpreted by lenders to include significant changes that may make the loan less profitable for the bank.
Borrowers are left between a rock and a hard place.
As interest rates have risen this year, banks are invoking the MAC clause to insist on changes to the terms of the loan even though they have a commitment signed by both borrower and lender.
As detailed in this recent GlobeSt.com article, lenders are demanding higher rates or spreads at closing or are refusing to rate lock until just before closing. Borrowers are left with a hard choice: accept these new, tougher terms, or walk away and put the entire project – and all their predevelopment cash – at risk.
Avoid the stress with an FHA-insured loan.
Developers want certainty of execution, to know that the deal will close on the agreed upon terms. No one wants to worry that the terms of the loan will change at the closing table. There is an alternative to banks and MAC clauses. FHA-insured financing for multifamily projects is consistent from market to market and over time. Leverage, coverage, and terms are standard from deal to deal. Rates are locked and fixed for the life of the loan about sixty days before closing and they will not change.
With an FHA-insured loan, you will never see a MAC clause or a retrade at closing.
AGM Financial provides long-term FHA-insured loans with rates fixed both during construction and for forty years after construction is complete. A commitment and a rate lock mean that the deal really is the deal.
Count on the steadfastness of AGM.
As a family-owned FHA lender and GNMA seller/servicer with over 30 years of experience, we know the process inside and out. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. We've closed more than $9 billion in FHA-insured multifamily loans nationwide. And we’re proud to say that more than 60% of our borrowers are repeat clients. Count on our experienced team to guide you through the FHA process and help you get the deal done.
Avoid MAC clauses. AGM will partner with you to get an attractive multifamily loan that you can count on. Ready to get started? Please contact our helpful team today.
About AGM Financial
Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.
