Financing – New Loans and Deals in Progress
  • Very fluid Check with us about specifics. There have been lots of changes to both SBL and Large loans as of 3/25/2020 rates range from the mid 3.85% range for larger deals with Freddie and nearly 5% for SBL with Fannie.
  • Fannie is now requiring substantial debt service reserve escrow (6 to 18 months)
  • LTV – 75% or less TBD by declining April / May collections. Can impact loan in progress
  • Interest Only is off the table for now
  • Supplemental rates have increased due to spreads increasing
Servicing Debt
  • Forbearance Guidance as of 3/25/2020, they are expected end of this month
    • DUS Level or elevated to Agencies? Not clear currently.
    • Will likely only be offered to owners who suspend evictions due to COVID-19
  • Forbearance – case-by-case basis and need to show declining collections and need for it.
  • Key Principals – are calculating how many months reserves are on hand?
    • They are looking at Capital Call provisions in Company Agreements. If you can’t make April & May payment the lender will look at this negatively…you should have a “rainy-day” fund
    • Some Operators plan to defer asset management fees if rents decline to help cash-flow
  • Figure out how much you have in reserves and reach out to your Lender/Servicer sooner rather than later to figure out how they plan to handle reduced or no payment
    • During the Great Recession, Lenders would work with responsible owners that could demonstrate they were doing all the right things to take care of the asset.
      • Lenders offered deferred payments (Forbearance) and allowed for interest-only payments for a predetermined amount of time in some cases
Making Offers
  • We will likely shift back to the old “normal”:
    • Due Diligence Contingencies
    • Financing Contingencies
    • Refundable Earnest Money
    • And/or Force Majeure clause (specifically COVID-19 related, unforeseen circumstances that prevent someone from fulfilling a contract)
  • Most active buyers are now making offers based on in-place cash-flow
  • Temporarily holding off on planned upgrades
  • Reduced or Eliminate Non-Refundable Earnest Money (deal-by-deal based on risk profile)
  • 3rd Party Lender Reports – clause extending closings and/or diligence periods until things get back to normal
  • Longer Timelines / Extensions Built-In (90 days min to close currently)
    • Consult attorney
Property Tours & Due Diligence
  • Drive-By & Virtual Tours: View Here 
  • Lack of Ability to Access Interior Units = Extended Due Diligence Periods
  • Access Common Areas are Subject to Owner / Mgmt Co
  • Lack of Ability to Conduct Lease File Audits
  • Seller Certified financial statements and rent rolls will likely be required going forward if Leases cannot be accessed
  • We can still show Exterior & Vacant units
  • Main impact = Difficulty putting together a detailed interior upgrade plan/budget, inability to verify the unit mix
Deals Under Contract
  • 1031 buyers trying to satisfy their exchange are still motivated to close
    • Worried about not being able to complete inspections in time before their exchange expires
    • Worried about lending proceed will be available to satisfy exchange
  • Depends on where are you in the process how deals are playing out from the lender and investment level
  • Those that were or are near the end of the process are OK.
    • Is your due diligence completed?
    • Is Your Earnest Money non-refundable?
    • Loan Application – where are you in the process
    • Capital Raise – good and bad time. The more experienced KP’s are not having any problems, new or newer to market investors are.
  • Updating underwriting for investors with a new horizon and path to get to the end goal.
  • Extensions / Renegotiate – Be careful…while it might not be fair for the buyer to bear all the burden Brokers will likely stop doing business with Buyers if they are asking for unreasonable discounts mid-contract in the future
  • Get with your team (Lender / Attorney / Brokers / etc) and try to negotiate a win-win then, when other opportunities come up in the future those buyers will be at the top of the call list
Passive Investing & Raising Money
  • Be careful about offering a preferred return as you could be obligating yourself to a free job if the market doesn’t appreciate to your promised return within your hold timeframe
  • Assume a 7-10% cash-flowing asset, good location, with conservative underwriting given the global circumstances is still a great bet
  • Multifamily is best positioned to weather a recession
  • DFW was ranked as the best location to weather a recession
  • Bonus Depreciation is still available
  • Conservative investors will look for deals with CASH FLOW
  • Opportunistic investors will take a run at deeper value add opportunities as those assets will see greater price adjustments if the recession is an extended one
  • Confidence in Sponsorship Team
    • Make sure KP’s have skin in the game
    • Liquidity/Reserves – raise a rainy-day fund
    • What will they do in a crisis? – Defer asset management fees, contribute their KP share to the capital call in addition to their LP share?
  • Keep in mind these are long term investment generally 3-7 years so there is plenty of time for the economy to recover
  • My experience from the Great Recession tells me responsible operators will be OK. Those that try to game the system or their lenders will lose their assets
Other Ideas Investors are Employing – Operations
  • Preserving Capital
  • Suspending Distributions, Cap Ex, Value Add Upgrades Etc.
  • Reduced Staffing / Leasing Tour / Property Access
  • Accounts Payable Longer payment terms (ie 60-90 days) to vendors
  • Waiving Late Fees
  • Allowing Tenants who were MTM sign short term leases to avoid MTM fees (3-months)
  • Postponing Eviction Filings
  • Providing residents with assistance to resources like unemployment and rental assistance programs
  • If Office Staff is limited, push online payment of rents
Closing Words
  • This is an opportunity; people will always need a place to live, so multifamily will remain one of the safest real estate asset classes for many years to come
  • I’ve seen fortunes made in a down economy
  • Invest in Yourself
  • Take time to complete all the projects you didn’t have time for before
  • Labor will likely get cheaper with less demand
  • Materials could get more affordable with less demand (once building and renovations slow down)
  • Stay Informed but Protect your Psyche (don’t watch or read too much news)
  • Get Work Done
  • Do The Right Thing
  • Be Compassionate


About the author:
Todd Franks is the founding Broker and Executive Managing Director of Greystone | Investment Sales Group in Dallas, TX. If you want to learn more about our Off-Market Opportunities, Multi-Family Listings, Land Sale Listings, Property Valuations, Debt Platform, or meet for coffee to exchange value-add ideas, contact our office:

Greystone Investment Sales Group
6320 LBJ Freeway, Suite 228, Dallas, TX, 75240