CBRE has arranged the first multifamily loan indexed to the Secured Overnight Financing Rate to be purchased by Freddie Mac.
SOFR, an interest rate that banks use to price U.S. dollar-denominated derivatives
Through its direct lending program as a Freddie Mac Optigo Lender, CBRE arranged the refinancing of a $20 million bridge loan for Vintage Apartments, a 292-unit multifamily project in the Brookhollow/Inwood neighborhood of Houston, Texas. The loan, which was closed by CBRE’s Houston office, was purchased by Freddie Mac on September 29.
The 10-year floating rate loan indexed to SOFR was made to two commercial real estate investment companies based in Houston. The borrowers purchased a SOFR-indexed interest rate cap that cost 3 basis points more than a LIBOR-based cap.
The loan also uses the first SOFR-based hedge (rate cap) to mitigate future increases in the Index. Freddie Mac, and all lenders who make floating rate loans, require an interest rate cap in order to mitigate the potential for the SOFR Index to rise over time, thus causing an increase in the borrower’s principal and interest payments. With respect to the Vintage Apartments loan, the SOFR Index yield at closing was 0.09% and the borrower purchased a SOFR interest rate cap that had a maximum yield of 2.00%.
“CBRE has devoted time and resources to understand the nuances of the LIBOR-to-SOFR transition, consistent with our position as the market leader. We are pleased to offer our multifamily clients the most innovative financing solutions for their apartment communities,” said Mitchell Kiffe, senior managing director of Capital Markets for CBRE.
“By utilizing the new SOFR-indexed floating rate loan programs of Freddie Mac and Fannie Mae, a sponsor can obtain a very attractive cost of capital typically in the 2.5 -3.0% range for loans 70% LTV and higher, while maintaining exit flexibility at a very low cost, typically 1% of the loan value.”
The transition to SOFR began in 2018 when global financial regulators determined that a more reliable and transaction-based index should replace LIBOR. Freddie Mac and Fannie Mae are leading this conversion by phasing out the purchase of all LIBOR-indexed multifamily and single-family loans by December 31st, 2020, with both agencies purchasing SOFR loans now.
Including the loan for the Vintage Apartments, CBRE has closed five SOFR loans for a total of $118 million and has another 45 loans under application with Freddie Mac and Fannie Mae for over $1.4 billion in aggregate loan amount.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2019 revenue). The company has more than 100,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 530 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
