Student Housing Financing

Borrowers & BrokersFrequently Asked Questions & Answers

Arbor Commercial Mortgage, LLC1.800.ARBOR.10 • www.arbor.com

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Overview

For more than a decade, Arbor Commercial Mortgage has provided its student housing investment partners with the national financial resources they need at the local level where they do business. With more than a decade of industry expertise and experience, Arbor has become an integral part of the unique and growing student housing community.

Focusing on university markets with a student population of 8,000 or more, Arbor’s Student Housing Loan program provides long-term, fixed-rate, non-recourse acquisition and refinance loans at a minimum of $1 million under the Freddie Mac Program Plus® or Fannie Mae’s DUS® Program. Arbor provides in-depth local university and college town knowledge, as well as a comprehensive awareness of the uniquely labor- and capital-intensive student housing business, to ensure a personalized experience for each student housing investment client. Toward that end, and because of the unique nature of the student housing finance sector, Arbor has crafted for both borrowers and brokers, answers direct from our Chairman and CEO, Ivan Kaufman, to many of their frequently asked questions in the hopes that they may discover the most appropriate financing options for their specific investments.

Frequently Asked Questions

Do you see traditional multifamily investors moving into the student housing sector?

Yes. Multifamily owners are seeing the stability of the cash flow from student housing properties and the potential for increased rents, both of which are high on any owner’s wish list.

How do you analyze student housing rental demand when in the current market there are so many “amateur” landlords willing to rent out their houses near campuses?

This is why knowing your operator is so essential from a lender’s standpoint. A good operator will provide the services to keep his tenants satisfied and his properties, therefore, filled, especially in competition with single-family rental properties. Without meeting the needs of the residents (i.e. Internet, cable television, pools, social activities, transportation to campus, lounges, etc.) the property will most likely suffer unless the location to campus is so strong that it doesn’t matter what services are offered. Living in a single-family house is obviously much different than living in a large apartment complex.

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As an underwriter of student housing assets, what is important to you from an appraisal standpoint? What is needed to make a better underwriting decision?

As long as the appraiser is comparing student properties in the area, then the lender’s value holds up. The key underwriting criteria is really sponsorship and location.

Will Freddie Mac or Fannie Mae provide 10-year, 80 percent LTV financing for student housing?

Yes. Maximum LTV on student properties is 80 percent, with a minimum 1.30x debt service coverage ratio. Typically, loans are written on a 25- to 30-year amortization schedule with a 10-year balloon.

What is the smallest loan size Fannie Mae or Freddie Mac would consider?

$1 million is the minimum loan size for Fannie Mae, whereas Freddie Mac has a $5-million minimum.

In addition to Fannie Mae loans, what other financing options exist for Student Housing?

Permanent financing can be obtained through Fannie Mae- and FHA-licensed lenders, such as Arbor. Also, Bridge loans can be a critical interim financing source in helping a borrower eventually obtain a permanent Fannie Mae of FHA exit. Dedicated and traditional student housing properties are eligible for all loan product types mentioned above, including even new construction financing through the FHA.

How are community colleges viewed by Fannie Mae? Any different from a university?

Normally, properties serving community colleges’ housing demand are treated more like typical residential multifamily properties since most of the residents work, even on a part time basis, and therefore can qualify for their unit based on their income. In other words, they don’t need parental guarantees per Fannie Mae guidelines. Also, most community colleges serve those students who either live at home or commute from a different area so their effect on the local apartment market is not as significant as a “dedicated” college or university campus.

Are private universities evaluated any differently from public universities?

No.

How often does Fannie Mae and Freddie Mac review their lending parameters?

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Relative to student housing parameters, Fannie Mae and Freddie Mac review their lending parameters once a year.

Is it easier to arrange financing for a portfolio or a single asset?

As a general rule, a single asset is easier to arrange, as portfolio loans can easily become problematic mostly because of size and market concentration issues.

What are the reserve requirements for financing per-bed or per-unit (dollars per year) and what are the growth rates on this value?

Fannie Mae’s minimum underwriting requirement for replacement reserves is $250 per unit per year, whereas Freddie Mac’s is $350 per unit per year. More specifically, given the extra operational stress on a student property, the actual operating number is more like $350 to $500 per unit per year.

Are multifamily property managers generally positioned properly to understand the differences in managing student housing?

As a general rule, no. The large owner/operators that have a diverse portfolio of properties will be much more successful than the smaller owner who thinks a student property will operate similar to his or her regular family-targeted property. The marketing and oversight of student properties are the two areas which comprise the largest difference from regular family-targeted properties and student properties.

About Us

Founded by Chairman and CEO Ivan Kaufman, Arbor Commercial Mortgage, LLC and Arbor Commercial Funding, LLC are national direct lenders specializing in loan origination and servicing for multifamily, seniors housing, healthcare and other diverse commercial real estate assets. Arbor is a 2014 Top 10 Fannie Mae DUS ® Multifamily Lender by volume, a Freddie Mac Program Plus ® Seller/Servicer and Small Balance Loan lender, an FHA Multifamily Accelerated Processing (MAP)/LEAN Lender, a HUD-approved LIHTC Lender as well as a CMBS, Bridge and Mezzanine lender, consistently building on its reputation for service, quality and flexibility. With a current servicing portfolio of more than $11 billion, Arbor is a primary commercial loan servicer and special servicer rated by Standard & Poor’s and holds an Above Average rating from Standard & Poor’s. Arbor is also on the Standard & Poor’s Select Servicer List and is a primary commercial loan servicer and loan level special servicer rated by Fitch Ratings.

Arbor Commercial Mortgage, LLC also manages Arbor Realty Trust, Inc., a real estate investment trust (REIT) formed to invest in mortgage-related securities, real estate-related bridge and mezzanine loans, junior participating interests in first mortgages,

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preferred and direct equity investments and, in limited cases, discounted mortgage notes and other real estate-related assets. Arbor is headquartered in Uniondale, NY, with full-service lending offices throughout the United States. For more information about Arbor, visit www.arbor.com.

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