This document summarizes a presentation on small balance multifamily loans. It discusses the growth of the small balance loan market since 2009, characteristics of small properties and borrowers, and programs from Freddie Mac and Arbor to provide financing for small balance loans. Key points include the rapid growth of Freddie Mac's Small Balance Loan program, benefits of small balance financing like fixed rates and interest-only options, and Arbor's online platform called ALEX that aims to streamline the loan process.

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Leveraging Small Mul/family
Loans in 2017
How to Grow Your Mul,family Investment
Por8olio and Maximize Returns

2. 2
Today’s Panel
Ivan Kaufman
Chairman, President & CEO
Arbor Realty Trust, Inc.
Steve Johnson
Vice President, Small Balance
Loan Business, Freddie Mac
Sam Chandan
Silverstein Chair, NYU SPS Schack
& Founder, Chandan Economics
Speakers Moderator

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What is a Small Balance Loan?

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What is Considered a Small Balance Loan?
Although small mul/family proper/es are commonly
defined as those with five to 50 units, Freddie Mac recently
announced a new Small Balance Loan (SBL) program
designed for:
• Mul/family loans ranging from $1 million to $6 million in
all markets (proper/es with 5+ units).
• Mul/family loans from $6 million to $7.5 million in Top
and Standard markets for proper/es with 75 units or less.

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Sizing the Small Mul/family Loan Market
42,459
63%
15,379
23%
9,127
14%
Less than $3 million $3 million to $10 million Greater than $10 million
$37.0
14%
$68.0
26%
$154.1
60%
Mul:family Lending by Size 2015
Based on 2015 MBA Annual Report on Mul/family Lending
Number of Loans Volume of Loans (Billions)
The small mul/family loan market (proper/es with 5 to 50 units),
which represents 65% of loans but 20% of volume*.
*Chandan Economics.

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Sizing the Small Balance Loan Market
Es:mated Total Small Balance Origina:on Volume
($Billions, 2016 is Q1 only)
Source: Chandan Economics, ALEX Chager
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
2009
2010
2011
2012
2013
2014
2015
2016
$Billions
Es:mated Total Small Balance Origina:on Volume
The small mul/family loan market (proper/es with 5 to 50 units) has
more than quadrupled since 2009 — from $11.1B to $47.6B.

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Why So Much Growth?
Demand for safe, clean and affordable housing higher than ever
Investors turning to secondary and ter/ary markets for value
Rise of the value-add strategy
New, standardized capital sources make financing accessible
Investors looking for alterna/ves to the equity markets

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Why Did Freddie Mac Launch SBL Program?
Previously offered
smaller loans to
exis/ng clients on a
one-off basis.
Saw an opportunity
to provide liquidity
to an underserved
and onen
fragmented part of
the market.
A dedicated
business with
dedicated staff
would bring new
efficiencies to the
market.
Exis/ng
rela/onships with
expert sellers
allowed us to
create an
extremely /mely
product.

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Rapid Growth Since 2014 Launch
SBL Program Volume (Incep:on to Q1 2017)
$-
$200,000,000
$400,000,000
$600,000,000
$800,000,000
$1,000,000,000
$1,200,000,000
$1,400,000,000
2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1
(Source: Freddie Mac)

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Arbor’s Long History in the Small Loan Space
v Arbor (NYSE: ABR) is a na/onal direct lender that provides debt
capital for the mul/family and commercial real estate industries.
v From its beginnings as the mul/family small loan mortgage
specialist, Arbor con/nues to ensure that this once underserved
market receives the professional and personalized treatment it
deserves.
v Partnered with Freddie Mac to help launch the Small Balance
Loan program which debuted in 2014.
v Arbor’s long history in the small loan space has con/nued
dedica/on to the market has helped us become the industry’s
leading small loan lender.
v Arbor is an industry innovator that’s heavily invested in
developing technology to streamline mul/family loan origina/on
and processing opera/ons.

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Who is the Small Balance Borrower
Key Features of a Small Balance Borrower
Non-ins:tu:onal
More concentrated in small proper:es
Geographic focus on secondary &
ter:ary markets

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Who is the Small Balance Renter?
Key Features of a Small Balance Renter
Tend to be younger renters — especially those with
children — as smaller proper/es feature more affordable
rents and larger unit footprints.
Source: Chandan Economics, U.S. Census Bureau

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State of the Mul:family Industry

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Why is Mul/family So Hot?
Homeownership Rate vs. Mul:family Occupancy
u Dawn of the ‘Rentership’ Era
u Millennials and Baby Boomers Ren/ng by
Choice
u Real median household income is not much
higher than it was in 2000, but rents have
con/nued to grow
86%
87%
88%
89%
90%
91%
92%
93%
94%
95%
59%
60%
61%
62%
63%
64%
65%
66%
67%
68%
69%
70%
MultifamilyOccupancyRate(5+Units)
HomeownershipRate
Source: U.S. Census Bureau
Homeownership Rate
Multifamily Occupany (5+ Units)

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Mul/family Market Fundamentals
0.0%
2.5%
5.0%
7.5%
10.0%
$800
$950
$1,100
$1,250
$1,400
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
Average Asking Rent ($/Unit) Vacancy (%)
Asking Rent and Vacancy
United States, Mul/family
Source: Arbor, Reis
$75,000
$100,000
$125,000
$150,000
$175,000
$0.0
$15.0
$30.0
$45.0
$60.0
4Q11 4Q12 4Q13 4Q14 4Q15 4Q16
Sales Volume ($, Billions) Sale Price ($/Unit)
Sales Volume and Price
United States, Mul/family
Source: Arbor, Real Capital Analy/cs
• Mul/family asking rents
increased 3.7% year-over-year
as of 4Q2016.
• In spite of increased unit
deliveries, na/onal vacancy
finished at 4.2% — in line with
with one year prior.
• Sales volume reached a record-
high of $158.4 billion during
2016.

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High Demand for All Types of Rental Housing
25.9
5.7
19.7
24.2
8.5
11.1
4.9
27.4
6.1
18.7
22.8
8.6
11.6
4.7
28.4
6.3
18.1
22.5
8.4
11.6
4.6
1, DETACHED 1, ATTACHED 2-4 5-19 20-49 50+ OTHER*
DISTRIBUTIONOFRENTEROCCUPIEDSTOCK(%)
2007 2010 2015
Source: Census Bureau
* Other includes manufactured/mobile homes, boats, RVs, vans etc.
U.S. Renter Occupied Stock by Structure

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Select Interest Rates
Selected Interest Rates
Monthly, Not Seasonally Adjusted
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17
U.S. Recession 10-Year Treasury 30-Year Fixed Rate Mortgage Federal Funds Rate LIBOR 1-Month U.S. Dollar
Source: Arbor, Freddie Mac, Board of Governors of the Federal Reserve System, ICE Benchmark Administra/on

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Top Markets by Income Growth
Metropolitan Market
2017 Annualized Growth in
Gross Income
2017 Vacancy Rate
Sacramento 6.4% 2.2%
Seagle 5.9% 5.6%
Tacoma 5.8% 3.2%
Portland 4.9% 5.8%
Colorado Springs 4.7% 3.8%
Phoenix 4.5% 5.4%
Tampa 4.4% 5.2%
Chicago 4.4% 3.8%
Jacksonville 4.3% 6.9%
Los Angeles 4.2% 3.7%
United States 3.4% 5.2%
The pace of mul/family rent growth is star/ng to slow down as new units come
online. In 2017, for example, the na/onal vacancy rates is projected to breach 5%
for the first /me since 2011.
(Source: Freddie Mac projec/ons)

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Arbor’s Top States for Loans Under $5MM
(Based on 2016 Agency volume for loans under $5,000,000.)

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Why Pursue
Small Balance Financing?

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A Closer Look at the Terms
5-, 7-, 10-
year terms
Fixed-rate or
hybrid ARM
Interest-only
(part or full)
Up to 80%
LTV
30-year
amor:za:on
Non-
recourse
Assumable
Coupon
pricing
Step-down
prepayment
Cash-out
op:ons
$1MM to $5MM Loan Amount for
Proper/es Na:onwide with 5+ Units
$6MM to $7.5MM Loan Amount for Proper/es in
Top and Standard Markets with less than 75 units.

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Freddie Mac SBL Eligibility
Loan/borrower is… Yes Case-by-Case No
$1M - $7.5M
Duplex, triplex or quadraplex
5 or more units
Located in a top market
Located in a non-top market
Borrower is local and experienced
Borrower w/ minimal mul:family experience
Purpose-built Students, Seniors or Military
Property condi:on: average or beher
Property condi:on: below average
Borrower poriolio concentrated in small apts.
Ins:tu:onal borrower

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Arbor & Freddie Mac SBL Case Study — Oregon
REFINANCE
• 42 units in Portland, OR
• $3 million
• $1.5 million cash-out
• 5-year hybrid ARM
• 1-year interest-only
PURCHASE 1
• 22 units in Portland, OR
• $1.3 million
• 7-year hybrid ARM
• 2-years interest-only
PURCHASE 2
• 20 units in Portland, OR
• $1.3 million
• 5-year hybrid ARM
• 1-year interest-only
PURCHASE 3
• 26 units in Portland, OR
• $1.3 million
• 7-year hybrid ARM
• 2-years interest-only

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Technology in the
Mul:family Loan Space

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Meet ALEX (Arbor LoanExpress)
The commercial real estate industry’s first online agency lending plaiorm for
brokers, borrowers and correspondent lenders.

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ALEX Takes the Guesswork out of Processing

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Benefits of ALEX
Faster Loan Evalua/on
Accessible & User Friendly
E-Signature
Streamlined Documenta/on
Real-Time Diligence Tracking
Loan Status on the Go

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Tips for Geung Started
Advice for Geung Started
q Pick loan terms that align with your individual goals
q Select a top property management firm in your market
q Partner with a more experienced key principal
q Look to employment growth corridors with room for price apprecia:on

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ALEX Chager – News, Research & Insight
www.ALEXChaher.com
Go.Arbor.com/Research