For Multifamily Borrowers, Changes Are Coming

Inflation has accelerated at its quickest rate in 40 years. As the second half of 2022 begins,  inflation has some borrowers rethinking borrowing.

Borrowers are turning toward alternate sources such debt funds, bridge funds, community bank loans, and life company loans. With advantageous conditions offering more revenues to fund value-add or other investment plans, these alternative methods of funding are becoming more attractive.Fannie Mae and Freddie Mac still provide funding because these agency loans continue to be a popular choice for many borrowers in spite of the competition. Agency lenders may wish to be mindful of the following factors impacting multi-family borrowers in addition to inflation-related worries: 

Updated Standards for Radon Testing & Mitigation
In Colorado and New Jersey, American National Standards Institute (ANSI)/AARST (American Association of Radon Scientists) standards have been approved. The new rules went into effect in Colorado on July 1, 2022, and they go into force in New Jersey on December 3, 2022. To be deemed a Radon Professional qualified to conduct testing and undertake mitigation, both states require state-specific licensing. Additionally, for multifamily complexes, these states will call for sampling of all ground-level units in addition to 10% of  upper level units. Minnesota, Iowa, Indiana, Illinois, Ohio, Pennsylvania, and Maine are among the states that have already embraced the ANSI/AARST criteria for multifamily properties. Every state, with the exception of Colorado, has an exemption code. Ask your provider of due diligence if your property qualifies for that exemption code.

Numerous federal and state agencies, including the Department of Housing and Urban Development (HUD) and the Environmental Protection Agency, use the national consensus ANSI/AARST Radon Standards of Practice (EPA). Here is a list of national consensus standards for various building types.
California SB-721 Deadline Approaching
By January 2025, owners of multifamily buildings in California must abide by SB-721. 2018 saw the signing of California Senate Bill 721, sometimes known as the Balcony Bill. After a balcony collapse in Berkeley, California claimed the lives of six students and seriously injured another seven, SB-721 was passed into law. The law mandates examination and retrofitting of Exterior Elevated Elements (EEE) such balconies, decks, staircases, and pathways in multifamily structures with three units or more. The assessment of a piece of EEE by an engineer, architect, or other certified provider is required by building owners in order to identify any urgent hazards and suggested countermeasures. The initial inspection shall be done for each and every impacted building prior to January 1, 2025. Timelines for reporting, obtaining permits, and making repairs apply, and subsequent reviews are required every six years. More detail on SB-721 can be found here.
Lastly, some would wonder if agency lenders will adhere to the 2022 loan limits. In order to boost the multifamily sector, the Federal Housing Finance Agency (FHFA) raised the multifamily loan purchase caps for each entity in October 2021, totaling a combined $156 billion. The FHFA required that, in addition to the caps, 50% of the loan volume be used for mission-driven, affordable housing or other mission-oriented businesses. This made sure that affordable housing and traditionally neglected markets received adequate investment. We have seen an increase in Fannie/Freddie lending activity over the past few weeks. Agency loans are now slightly more competitive as a result of market pressure and the requirement to reach the cap. Considering the current pattern, we do anticipate that the 2022 caps will be met.
The SVN Vanguard team can help with your multifamily real estate needs. We can help you find the ideal multifamily property for sale or lease. Interested in discussing a sale-leaseback? Contact us.

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