Arbor's Multifamily Small Loans report with small loan program summaries and insider information from Sam Chandan of Chandan Economics.

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Multifamily Small Loans Report
Q4 2018

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Multifamily Small Loans Report Q4 2018
Multifamily Small Loan Program Summaries
Fannie Mae
• Loan amount up to $6 million; Properties with five or more units
• Conventional properties; Multifamily Affordable Housing properties; Cooperative properties (market-rate); and
Manufactured Housing Communities; Existing, stabilized multifamily properties
• Loans for acquisition or refinance; Term 5-30 years; fixed- and variable-rate options available
• Maximum LTV 80%; Minimum DSCR 1.25x
Freddie Mac
• Up to $7.5 million in all markets
• Unit limitations:
• Loan amount ≤ $6 million: no unit limitations
• Loan amount > $6 million and ≤ $7.5 million: up to 100 units (exceptions permitted above 100 units)
• Acquisition or refinance; Amortization up to 30 years
• 20-year hybrid ARM with initial 5-, 7-, or 10-year fixed-rate period -or- 5-, 7-, or 10-year fixed-rate loan
• Partial-term interest-only, full-term interest-only may be available
FHFA
• Small multifamily properties are properties that have 5 to 50 units.
• FHFA will exclude the pro rata portion of the loan amount based on the percentage of units affordable at
80% of AMI or below in standard and cost-burdened renter markets, 100% of AMI or below in very cost-
burdened renter markets, and 120% of AMI or below in extremely cost-burdened renter markets.
FHA (Section 207/223F)
• Structures with five or more units
• Maximum LTV 83.3%; Term 30-40 years; Amortization 30-40 years

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Multifamily Small Loans Report Q4 2018
Small Multifamily Headlines
Here’s Where Multifamily Investors Should Turn For Their Small Loans | HousingWire - January 30, 2019
“For your ‘down the fairway’ type loans in major markets (think Los Angeles, Miami, Austin or one of the boroughs), Freddie Small Balance
may be right for you if you are looking to max out your leverage and want that 30-year amortization.”
Transaction Trends in Multifamily Small Assets | CBRE - October 25, 2018
“A high percentage of U.S. multifamily inventory is in small properties, and a significant percentage of multifamily renters live in small
properties. In the capital markets world, investment in and financing of smaller assets is very active.”
Small-Balance Market Shows Resilience | Mortgage Bankers Association - September 10, 2018
"As the macroeconomic and real estate cycles lengthen, the [small-balance] multifamily sector is generally expected to outperform other
property types, both in terms of liquidity and the stability of operating fundamentals. Healthy operating income, a structural diversity of
capital sources and elevated demand for refinancing from the sector's higher indebtedness will support a critical mass of lending activity.“
The Death of the Small Apartment Building | Bloomberg - June 5, 2018
“Big apartment buildings are going up at a record pace in the U.S., but little ones are ever rarer. That’s a problem.”
A Big Year for Small Balance Loans | Freddie Mac - January 22, 2018
“There is no doubt that 2017 was a huge year for the Small Balance Loans (SBL) business – at Freddie Mac and each of your firms. To be
honest, every time I look at the numbers we tallied together in 2017, I think of the story of The Little Engine That Could. If you haven’t
seen the numbers yet, take a look.”

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Multifamily Small Loans Report Q4 2018
• Relatively smaller apartment properties backed by small balance loans are essential to market-rate housing
affordability outcomes in the U.S. This holds for millions of moderate-income families that rent their homes; an
economically and socially diverse population who have seen their rents rise faster than their incomes and who
typically will not have access to specialized federal and state housing programs.
• As compared to large, high-amenity properties, smaller apartment buildings are more likely to be located outside
the urban core, near a high-performing public school. The unit mix in smaller properties includes a larger share of
two- and three-bedroom units that can accommodate families. Rents are lower, but supply constraints in this
segment of the market have seen an erosion of affordability.
• All else equal, the cash flow performance of smaller apartment properties during the current expansion suggests a
risk profile for small balance loans that is not significantly different from the apartment sector overall.
• The average occupancy rate for small balance properties is over 95%. Fewer than 12% of small balance properties
have occupancy rates below 90%.
• The non-performing rate for small balance loans is below 1%. In the case of agency small balance loans in that same
pool, the delinquency rate is less than one-tenth of 1%.
Sam Chandan, PhD is the Larry & Klara Silverstein Chair in Real Estate Development & Investment and Associate Dean
for the NYU SPS Schack Institute of Real Estate. Dean Chandan is also Partner, Chief Strategist, and a member of the
Investment Committee at Capri Capital Partners; Founder of Chandan Economics; and, co-host of the Real Estate Hour
on SiriusXM.
Sam Chandan: Why Multifamily Small Loans?

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Multifamily Small Loans Report Q4 2018
Source: Arbor; Chandan Economics
Total Multifamily Small Loans, All Loan Types
Multifamily Loans with Original Balances Between $1 Million and $5 Million, Including Sales and Refinancing
Note: Chandan Economics defines small loans as those with original balances between $1 million and $5 million — including loans for sales and refinancing.
$0.0
$11.0
$22.0
$33.0
$44.0
$55.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Volume (Billions)
Volume
(Billions)
2009 $11.1
2010 $13.6
2011 $21.7
2012 $32.5
2013 $40.4
2014 $41.9
2015 $44.9
2016 $47.6
2017 $49.9
2018 $51.7
The volume of new small balance multifamily loans reached $51.7 billion during 2018, the highest level of activity in Chandan Economics’
post-financial crisis market tracking and model estimates. After a slow start to the year, lending picked up in the third and fourth quarter of
2018, resulting in a 3.7% increase from the year prior.

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Multifamily Small Loans Report Q4 2018
Source: Arbor; Chandan Economics
Small Multifamily Cap Rates
United States, Quarterly
National average cap rates for multifamily properties backed by small balance loans have been a model of consistency for more than three
years, holding near 6.0% since the end of 2015. SBL cap rates finished 2018 at the aforementioned 6.0%, unchanged from the prior quarter
and down just 4 basis points from a year earlier. Small balance cap rates peaked at 7.5% in the immediate aftermath of the Great
Recession, rising sharply from a data series-low of 5.6% that coincided with the commercial real estate market peak in 2007.
0
30
60
90
120
150
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
4Q03
4Q04
4Q05
4Q06
4Q07
4Q08
4Q09
4Q10
4Q11
4Q12
4Q13
4Q14
4Q15
4Q16
4Q17
4Q18
All Transactions Small Balance Spread (BPS)
Note: Chandan Economics defines small loans as those with original balances between $1 million and $5 million — including loans for sales and refinancing.

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Multifamily Small Loans Report Q4 2018
Source: Arbor; Chandan Economics
Small Multifamily Debt Yields
United States, Quarterly
0
50
100
150
200
250
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
4Q10
4Q11
4Q12
4Q13
4Q14
4Q15
4Q16
4Q17
4Q18
All Transactions Small Balance Spread (BPS)
Debt yields—the ratio of net operating income and loan balance—for small balance loans have gone essentially unchanged throughout
2017 and 2018. SBL debt yields fell by 7 basis points (bps) between the third and fourth quarter, and sit squarely where they were to finish
2017. The loan-to-value ratio (LTV) on small balance loans originated during the fourth quarter of 2018 was 67.5%, up a negligible 8 bps
from the third quarter, but down a full 123 bps from the fourth quarter of 2017.
55.0%
59.0%
63.0%
67.0%
71.0%
75.0%
4Q10
4Q11
4Q12
4Q13
4Q14
4Q15
4Q16
4Q17
4Q18
All Transactions Small Balance
Small Multifamily LTVs
United States, Quarterly
Note: Chandan Economics defines small loans as those with original balances between $1 million and $5 million — including loans for sales and refinancing.

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Multifamily Small Loans Report Q4 2018
Fannie Mae and Freddie Mac Multifamily Small Loans
Based on Volume, Billions
$1.1
$1.6
$1.9
$2.3 $2.2
$2.6
$4.5
$6.3
$7.4
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
2014 2015 2016 2017 2018
Fannie Mae Freddie Mac
Source: Fannie Mae and Freddie Mac Press Releases
Fannie Mae Freddie Mac
2014 $1.1 NA
2015 $1.6 $2.6
2016 $1.9 $4.5
2017 $2.3 $6.3
2018 $2.2 $7.4

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Multifamily Small Loans Report Q4 2018
Source: Arbor, Chandan Economics, Fannie Mae, Freddie Mac
$2.3
4%
$7.8
16%
$39.8
80%
Fannie Mae Freddie Mac All Others
2017
Total Volume = $49.9 Billion
Note: Chandan Economics defines small loans as those with original balances between $1 million and $5 million — including loans for sales and refinancing.
Fannie Mae and Freddie Mac Share of Multifamily Small Loans
Multifamily, Based on Volume, Billions
$2.2
4%
$8.3
16%
$41.2
80%
Fannie Mae Freddie Mac All Others
2018
Total Volume = $51.7 Billion

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Multifamily Small Loans Report Q4 2018
8,841
20%
11,309
25%
14,834
33%
9,639
22%
< $1 Million $1 - $3 Million $3 - $10 Million > $10 Million
Source: Mortgage Bankers Association
$5.2
2% $20.2
7%
$71.1
25%
$188.6
66%
Dollar Volume of Lending
Total Volume = $285.0 Billion
Distribution of Multifamily Lending by Loan Size
Based on Mortgage Bankers Association Annual Report on Multifamily Lending 2017
Number of Loans
Total Loans = 44,623

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