Freddie Mac Value-Add Loans

The Freddie Mac value-add loan program features competitive pricing, interest only and floating-rate options, low execution costs, and non-recouse financing. This program offers short-term cost-effective financing for moderate property upgrades.

Value-Add Loan Options and Requirements
Loan Terms	2.5 years; interest-only Floating-rate; no cap needed No prepayment during the first year After the first year, borrower may pay off the loan at any time but must remit an exit fee of 2%; the exit fee will be waived if the loan is refinanced with a Freddie Mac fixed- or floating-rate securitized loan Acquisitions only; not assumable Loan documentation at origination will include the Value-Add Rider which will detail the terms/requirements of the rehabilitation Escrows will include real estate taxes, insurance, and replacement reserves; escrows for rehabilitation are not required
Property Types	Must have more than 500 units. Tier 5 MSA or better markets. Well-constructed properties requiring moderate repair Market laggards that require capital infusion and new/improved management REO properties in receivership that are capable of improved performance Not eligible: seniors housing, student housing, manufactured housing, affordable housing
Loan Proceeds/Sizing	Max LTV of 80% Debt service coverage ratio (DCR) based on 7-year fixed rate at current pricing and Treasury rate Standard Freddie Mac underwriting based on as-is income and expense Refinance Test not required at initial sizing No pro-forma underwriting of future performance
Rehabilitation	Rehabilitation must commence within 90 days of loan origination Budget should be no less than $5,000 per unit and no more than $15,000 per unit; increase in the budget will be reviewed on a case by case basis At least 50% of the plan/budget should be spend directly on unit upgrades Increases or decreases to the plan/budget less than or equal to 20 percent do not require notice to or approval by Freddie Mac; increases or decreases greater than 20 percent require notice to Freddie Mac; increases or decreases that go above $15,000 per unit or below $5,000 per unit require notice to and approval by Freddie Mac Rehabilitation term should not exceed 27 months Tenants will typically stay in place during the rehab; minimal disruption to property occupancy is expected Minimum break-even occupancy calculated at origination based on the applicable 7- year fixed-rate Servicer to provide standard performance/financial reporting and conduct annual inspections of rehab progress Borrower to provide quarterly attestation/certification of rehabilitation progress Guarantor to guaranty the lien-free completion of any work commenced in the manner required by the loan documents
At Loan Maturity/Refinance	Final engineer review of work completion and quality is required Freddie Mac will re-underwrite the loan (akin to any loan maturity) according to then-current credit policy parameters

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