The loans are expected to close on or before April 17, 2009--although in a statement AvalonBay cautions there is no assurance that these loans will close. Interest will be fixed at 5.86% per annum for ten years. Each of the loans will be IO during the first and second years of the loan term. After that, payments of principal and interest will be made based on a 30-year amortization schedule. The remaining principal amount and any unpaid interest due will be due at maturity on the tenth anniversary.
The company expects to use the proceeds to pay down its unsecured credit facility and to retire unsecured debt securities and other maturing debt. It will also serve as working capital related to development and redevelopment activity currently underway and general corporate purposes.
The financing is illustrative of how the GSEs--in this case Freddie Mac--has bolstered the asset class. "We have found that agency finance is still available," John Christie, senior director of Investor Relations & Research, tells GlobeSt.com. Except for a little more scrutiny on transactions, "from the standpoint of debt through the agencies, overall conditions are still favorable for lending in the multifamily sector." He declined to discuss specifics about the loan transaction.
The benefits of agency financial support, though, for the sector is being eroded to a certain degree by the twin forces of the recession and credit crunch. Late last year AvalonBay, for example, announced it would cut back on new developments and reduce the size of its organization because of the slumping capital and real estate markets. It said it would no longer pursue certain development parcels or rights--although construction on projects already begun would continue, such as Somerset Development's Westmont Station.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
