When the Capital Stack is an Asset, FHA-Insured Debt is Especially Attractive
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With the sharp rise in interest rates over the past several months and the resulting pressure on pricing, developers and owners who locked in lower rates before the run-up have found a new source of value – their capital stack.
When rates were low, as they had been for so long, many developers saw the value in long- term fixed-rate debt. Low rates meant higher leverage and greater cash-on-cash returns. A “fix it and forget it” approach also offered peace of mind. Today, those same developers are finding a new source of value in a capital stack that includes long term low-rate assumable debt.
Everyone stands to benefit.
In high interest environments, buyers seek deals with attractive debt and sellers find value the capital structure of their assets. For buyers looking to acquire multifamily assets today, extreme volatility in interest rates can turn proformas upside-down between contract and closing. Some buyers are responding by seeking properties with lower fixed-rate assumable debt. By assuming an in-place loan, they can mitigate interest rate risk and underwrite potentially greater leverage than would be available with a new loan at current rates. And for sellers, their capital stack represents value added. An assumable loan with a lower-than-market interest rate can enhance the marketability of the property.
The longer term of FHA-insured debt can itself be an asset.
Buyers looking to hold are attracted to thirty-five and forty-year amortization and longer remaining terms and can underwrite to a marginally lower cap rate. Assumption of an FHA-insured loan is a relatively inexpensive and straightforward process, though it may add a little time to the transaction. Sellers and brokers should talk with their FHA lender prior to listing to understand both the process and the full value of the property’s capital stack.
Whether markets are down or up, you can rely on 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 financing process and help you get the deal done.
Across a range of economic conditions, FHA financing is the smart choice. AGM will partner with you to get an attractive multifamily loan that you can count on. 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.
