Paul Winterowd – Multifamily Financing Scenario for 2020

Paul Winterowd

Multifamily Financing Updates for 2020

Paul Winterowd, with Bonneville Multifamily Capital, provides multifamily financing to investors throughout the USA.

From late 2018 to 2020, multifamily financing has been very steady. With cap rates compressing and international capital coming into US real estate markets, much of this has to do with gauging the 10 year treasury.

What Happened in 2019 to Create Opportunity in Multifamily Financing :

With multifamily finance rates falling through 2019, Fannie Mae and Freddie Mac became oversold and put the brakes on volume for borrowers. This means no exceptions and agency debt had slowed down. CMBS financing has since found a great opportunity and has taken advantage within the non-recourse financing realm for multifamily.

Going into 2020, we are seeing a competitive nature with Freddie Mac, Fannie Mae, and CMBS financing. Thus, this has created a great climate for financing in creating a lot of capital for investors including private money. Capital markets are alive and well throughout all asset classes in real estate.

With capitalization rates compressing throughout the nation, it has been questioned that we are in a multifamily bubble. With the global economic environment, with negative interest rates, the USA is really propping up the world. This could lead to compressed cap rates depending upon the local market.

Difference Between GSE Financing and CMBS Financing :

In regards to the differences between Agency Financing (Fannie Mae and Freddie Mac) versus Commercial Backed Securities (CMBS), a borrower can consider Agency Financing to be the government subsidized financing and would be preferable to an individual borrower. CMBS financing can be considered Wall Street interest and the terms can be more flexible, but, cost and rate will be higher for this reason.

Paul does not see changes in the GSE side of financing, but, thinks CMBS financing will become more prevalent.  Paul has performed full term interest only notes with 65% loan to value.

Prepayment Penalties :

Standard prepayment penalty on Fannie or Freddie notes is a “yield maintainance” or stepdown prepayment penalty. With a stepdown prepayment penalty, this would be percentage of loan balance that is reduced every year you hold the note. Stepdown prepayment penalties tend to be less punishing but cost more to obtain from Fannie or Freddie. Prepayment penalities depend on what risk the lender is willing to take and the cost and/or rate will play into this penalty.

Freddie Mac Small Balance Loan Program :

Paul also discussed the Freddie Mac Small Balance Loan. This product is designed for small multifamily buildings with $1M-7.5M loan amounts. The idea is to provide 30 year amortorized financing, with non-recourse financing, and provide the borrower the ability to scale their portfolio. These notes are offered on 5 year, 7 year, and 10 year fixed periods at aggressive rates. 2 or 3 year interest only periods are possible as well. Pricing is region based and then market-sized based. Most applications take 50-60 days to close. Both providers want to see 9 months in cash reserves and do not require an intense financial review.

Opportunity Zones :

Finally, Paul Winterowd educated listeners on opportunity zones. Areas that the US government has designated for reinvestment have provided investors the opportunity to reinvest in areas and obtain tax benefits. While the majority of these projects have been new construction, there is a fair share of renovation or re-use.

For more information on Paul Winterowd, you can reach him at :