Multifamily Investment Property Classifications
CREFCOA provides multifamily housing and apartment loans where the building is classified as “A”, “B”, and “C” as long as they are acceptable in both physical condition and market attributes. The building classifications are as follow and may vary from market to market.
Multifamily Property Classifications Overview
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Class A assets -- and Class B assets located in major markets -- typically command more interest from lenders. Life companies, pensions, REITs, agency lenders and conduits aggressively pursue Class A assets. As a result, you can expect:
- More financing options
- Lower rates
- Longer fixed rate terms and amortizations
- Higher leverage
- Asset is primary source of collateral with no personal guarantees (non-recourse)
- Lower debt service coverage requirements (as low as 1.15)
- Depending on the market, CAP rates in the 4%-6% range
Class B and C assets lose some interest from institutional investors and borrowers typically obtain financing from banks, agency lenders and specific purpose REITs. As a result, you can expect:
- Fewer financing options
- Slightly higher rates
- Fixed rate with balloon terms or 5 year resets
- 75%-80% leverage
- Non-recourse for assets located in major markets
- Recourse for assets located in secondary and tertiary markets
- Depending on the market, CAP rates in the 6%-8% range
Class C and D assets tend to be financed by local banks with little to no interest from secondary market lenders. As a result, you can expect:
- Limited financing options
- Rates 100-200 bps higher than higher quality assets
- Shorter fixed or floating rate terms
- 65% (75% for strong sponsors in major markets) leverage with no option for secondary debt
- Personal recourse
- Depending on the market, CAP rates north of 8%
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