Bank and agency loans are important sources of financing for multifamily properties and can be good solutions depending on the property and the owner’s goals. 

Finding the right financing solutions requires a team that understands conventional bank loans and agency loans and can help determine which option—or combination of options—is the right fit.     

“Both agency and bank loans can be excellent options depending on the particular client’s situation and goals,” said Jeanne Ho, Executive Director and Senior Client Executive for Real Estate Banking at JPMorgan Chase. “An agency loan can also complement bank financing to support an asset from construction to stabilization.” 

Pairing bank and agency loans to finance multifamily properties

The agencies—government-sponsored enterprises (GSEs) tasked with helping stabilize mortgage markets and providing consistent capital for housing—can provide financing for multifamily properties and clients of many sizes, including top-tier commercial real estate owners, developers, operating companies and investors.

Agency-approved lenders can originate and service agency loans and conventional bank loans. Multifamily investors can choose either loan type for their individual properties depending on which best fits each asset’s business plan. 

“JPMorgan Chase touches every type of real estate capital,” said John Hofmann, Head of Agency Production at JPMorgan Chase. “We're seeing opportunities on portfolio executions where we use agency debt for some assets and bank debt for others. Our ability to pair these executions allows us to take a holistic approach to our client-centered solutions.” 

Bank and agency loans can also complement each other to finance individual properties, particularly assets in development or undergoing a significant renovation and repositioning, Ho said.  

For instance, a multifamily investor or developer might choose traditional bank financing for a construction or value-add loan, then move to an agency loan when the asset is ready for permanent financing. 

When it comes to value-add loans, banks tend to offer more flexibility than agencies, Hofmann said. But with permanent financing, lenders can often offer higher proceeds with an agency loan. While it can be more difficult to access equity in a multifamily property likely to need a major renovation during the loan’s term, that may be less of a concern at a new or recently rehabbed building. 

The developer or investor’s desired timeline for securing permanent financing matters, too. 

“For instance, if a developer constructing a multifamily property wants to lock in an interest rate on a permanent loan without waiting for the property to be fully stabilized, agencies have near-stabilization or lease-up loan options that could be worth considering,” Ho said. 

Finding the right financing fit

Multifamily investors or developers evaluating agency and conventional bank loan options also need to consider which best fits their strategy for the asset. Some important factors to consider include: 

Expected hold period 

An agency loan can be a good fit for multifamily developers or investors who plan to keep an asset for an extended period. Fannie Mae and Freddie Mac offer fixed-rate and floating-rate loans with terms of 5, 7, 10 years and beyond, which may be longer than what’s available for a conventional bank loan. Selling mortgage-backed securities means agencies and lenders can use security investors’ capital to finance loans. Some of those investors want long-term investment products, which helps agencies offer longer terms. 

“For borrowers, longer terms can be particularly attractive when interest rates are low, as it lets them lock in the rate for a longer period,” Ho said. 

However, agency loans may come with larger prepayment penalties than conventional bank loans—a downside for investors who don’t want to make a long-term commitment. 

Potential changes to collateral

“Multifamily investors and developers seeking agency loans on individual properties should be confident they won’t need to make changes before the loan matures,” Ho said. Agencies convert their loans into mortgage-backed securities, which means the borrower and lender aren’t the only parties in the transaction—the security’s buyer is involved, too. 

This isn’t only an issue for borrowers who face unexpected challenges and need flexibility on loan payments. For instance, if investors wanted to expand a property and add new units, they would be making a change to the loan’s collateral. Even though it’s a positive change that would enhance the value of the collateral, the investors could face hurdles, Ho said. 

Portfolio-level vs. property-level financing

Agency-approved lenders can also offer credit facilities that let multifamily owners manage debt across a cross-collateralized portfolio. With a credit facility, investors can add, release or substitute collateral as they buy and sell properties. Investors can also increase the loan’s size as their portfolio’s value grows. While credit facilities can offer significant flexibility, they’re more complex and require more time to set up than individual property loans. 

A lender that offers both bank and agency financing can help multifamily investors and developers explore financing options and find the right solution. 

“Anyone seeking financing—bank or agency—will want to have comfort with the team they’re dealing with and know that team has the experience and capabilities to support their business,” Ho said.