LOS ANGELES—StarPoint Properties has secured a $42 million loan through Freddie Mac's CME program for the purchase of the Lafayette Parc multifamily complex. Last year, GlobeSt.com reported exclusively that StarPoint purchased the property for $51.8 million from an undisclosed seller. Now, we have learned that StarPoint also secured significant financing for the acquisition, locking in the spread in July 2014, four months before the it closed on the property in October 2014.

“It is not common to lock a spread four months in advance,” Trevor Fase, SVP at Walker & Dunlop, tells GlobeSt.com. “Typically acquisition due-diligence periods are 60 days in length. Per the PSA the seller of the property requested a delayed closing until the end of October. We were able to structure the loan with a competitive rate to accommodate the seller's requested closing date. Being able to lock in the interest rate and extend the closing allowed the borrower to take rate risk off the table while they were performing their due diligence. Sellers prefer a tighter closing period to avoid interest rate volatility.” Fase secured the funds on behalf of the borrower.

The loan has a 10-year fixed rate with 5 years interest only, and it carried an 80% loan-to-value, which, although sounds high, the market is seeing more and more regularly. The loan also carries a minimum 1.25x debt-service coverage ratio. The Freddie Mac program allows borrowers to lock in the rate at the time of the quote. “This allows the borrower to lock in and eliminate the most volatile part of the interest rate early in the process,” he adds.

Although unusual, Fase says “thankfully,” the process wasn't challenging. The loan team essentially did its due diligence early on to ensure a smooth process, and it paid off. “When we index lock a loan, we always want to vet as much as possible out prior to performing the lock,” says Fase. “Especially on an acquisition we want to make sure that there aren't going to be any items that appear during the full underwriting process that could significantly alter the loan. In working with our vendors, we were able to get expedited initial feedback that allowed all parties to be comfortable moving forward with the index lock. This again allowed the borrower to take market volatility off the table early in the process.”

While private lenders have been increasing their leverage to stay competitive in a market that seems to have more and more capital readily available everyday, this transaction—at 80% loan to value—shows that Freddie Mac is doing the same. “This transaction and the structuring of the loan shows the flexibility of the products that Freddie Mac is currently offering,” says Fase. “They are consistently trying to improve and offer new products so that they can better compete in the market with alternative debt sources. Freddie Mac introduced the index lock option last year, which has been a very popular option for borrowers. They are able to lock the treasury portion of the rate very early in the loan process.”