Early rate lock programs are the most accessible options to mitigate interest rate volatility. Fannie Mae has the Streamlined Rate Lock program, while Freddie Mac offers an Index Lock program, both of which are aimed at eliminating the risk of rising interest rates during the underwriting process.

"We provided $42.2 million in Fannie Mae loans to refinance a portfolio of three multifamily assets in the Southeast," says Waite. "In all three cases, we worked through Fannie Mae's Streamlined Rate Lock program to rate lock prior to full re-stabilization and minimize the impact of rising interest rates." The loan proceeds will allow the sponsor to continue to invest in improvements in the assets for years to come.

The agencies also offer lease-up programs, which allow investors to rate-lock and fund a loan in advance of stabilization. Capital One has utilized lease-up programs through both agencies to support borrowers and provide the best execution possible.

In a recent deal, Croxton and her team leveraged Freddie Mac's Lease Up program for a $114 Freddie Mac loan to Fairfield, which was used to refinance Embark Apartments in Fremont, California. "Although Embark was nearing stabilized occupancy at the time of closing, we expected further growth post-close and were able to secure additional loan proceeds based on the as-stabilized operations," Croxton says.

Through these two transactions alone, the team supported nearly 900 multifamily units in California, Tennessee and South Carolina.

Green Rewards and Targeted Affordable Housing Enable Mission-Driven Lending

In addition, both agencies offer programs targeted at green improvements and affordable properties, such as Fannie Mae's Green Rewards programs and Freddie Mac's Targeted Affordable Housing programs. These programs often receive better terms for borrowers that meet the property requirements.

In one case, Capital One worked with a sponsor through the Green Rewards program to install a community-wide solar power system to reduce the property's carbon footprint; another Green Rewards deal not only helped preserve nearly 200 units of senior housing, but also underwrote energy efficiency savings that funded green investments. And through the Targeted Affordable Housing program, Capital One has worked with sponsors to deliver affordable housing stock in high-cost areas in an effort to close the gap in housing supply and demand.

Enrolling in the Right Agency Program

Both agencies offer an abundance of programs for different deal types and specialty properties, from programs that support senior housing to programs tailored to an array of different affordable housing categories. Engaging a lender with deep agency experience is critical to navigating Fannie and Freddie's options and finding the right program that reflects your business model and investment goals.

"We advise borrowers to communicate both their short- and long-term business and property goals with their lender," says Waite. "When we have insight into the borrower's broader strategy and portfolio, we are able to anticipate potential challenges, address them early and provide recommendations on the programs and approaches that can meet borrowers' needs and help them achieve their goals."

While the agencies are operating with a slightly reduced lending cap this year, both lenders have significant room below the cap, and FHFA has stated they will increase the cap if market demand warrants it. As such, there remains ample opportunity for borrowers to leverage the agencies to secure critical funding and pursue opportunities—especially for mission-driven business and workforce housing properties.

"Agency lending is a critical source of liquidity in the market at all times," says Capital One's Waite. "We believe borrowers will continue to leverage attractive agency financing opportunities throughout 2023."

Click here for more stories in Capital One Commercial Real Estate thought leadership series.