FNMA: Fannie Mae Mortgage Association in Commercial Real Estate

Fannie Mae Mortgage Association, or FNMA, is a U.S. government sponsored enterprise that focuses on expanding housing opportunities across the United States. To do so, it purchases residential mortgages from lenders and securitizes, or pools them, into mortgage-backed securities. While Fannie Mae does not offer direct commercial real estate loans, investors can rent a certain amount of commercial space if they use an FNMA loan to purchase a multifamily property. For example, apartments purchased with a Fannie Mae DUS loan are permitted to have up to 35% of their property's space occupied by commercial tenants. Or, they can derive 20% of the property's income from commercial sources (whichever is less).

In addition to Fannie Mae, its brother corporation, Freddie Mac, also purchases and insures multifamily mortgages, including some that allow for a degree of commercial property use. For example, properties purchased with a Freddie Mac Small Balance Loan (SBL), can derive up to 40% of their income from commercial rents.

Fannie Mae offers a variety of loans for commercial real estate, including fixed-rate loans with 5- to 30-year terms, variable-rate loans, and interest-only options. Loan-to-value (LTV) ratios of up to 80% may be permitted. Fannie Mae also allows a certain portion of a property to be leased to commercial tenants, often between 15% and 25%, depending on the specific loan program.

For more information, please see the following sources:

• Fannie Mae Multifamily Loans
• Refinancing Commercial Real Estate Loans

To be eligible for a Fannie Mae commercial real estate loan, you must meet the following requirements:

• You must have a minimum loan amount of $1 million.
• You must be purchasing a multifamily property.
• You must be able to rent a certain amount of commercial space.
• You must be able to derive 20% of the property's income from commercial sources (whichever is less).

For more information, please visit www.commercialrealestate.loans/commercial-real-estate-glossary/fnma-fannie-mae and www.commercialrealestate.loans/how-to-get-a-commercial-real-estate-loan.

Fannie Mae offers a variety of commercial real estate loan products, including Multifamily Small Loans. The advantages of these loans include:

• Very competitive interest rates
• Up to 80% LTV allowance
• Streamlined processing/documentation
• Capital improvements may be included in the loan amount
• Most loans are non-recourse
• Supplemental loans are allowed after 12 months
• 30- 180 day rate locks available after commitment (extended rate locks also available)
• No processing fees (except with written approval)
• Non-recourse loans are assumable with lender approval and a 1% fee

Additionally, Fannie Mae DUS loans permit up to 35% of a property's space to be occupied by commercial tenants, or 20% of the property's income to be derived from commercial sources (whichever is less).

Fannie Mae commercial real estate loans have the following disadvantages:

• Selective of the properties they will finance.
• Require financially strong borrowers.
• Less autonomy in the operation of the property and limited flexibility to deviate from the terms of the loan documents.
• Difficulty in releasing collateral.
• Expensive to exit.
• Lock outs often prevent prepayment or up to two years.
• Reserves required.
• Secondary financing (i.e. mezzanine debt or preferred equity) not always allowed.

Source: www.multifamily.loans/freddie-mac-multifamily-loans and www.multifamily.loans/multifamily-cmbs-loans