How Agency Lending Opens The Door To A Wide Variety Of Loan Products

Government-Sponsored Enterprise (GSE) agency lending might not be the first thing that comes to mind when doing business with JPMorgan Chase (JPM), but the firm has a variety of such options for borrowers. Partner Insights spoke to Vince Toye, Head of Agency Lending for JPMorgan Chase, about why borrowers should give agency lending a closer look.  

Commercial Observer: Talk about some of the factors borrowers should examine when considering agency lending through JPMorgan Chase versus traditional bank lending.

Vince Toye: Borrowers should think long term. One thing about agency business is, it’s great for terms of seven to 10 years or even longer. Most traditional bank lending is for five years. It’s very rare for traditional bank loans on the balance sheet for a multifamily property to be longer than five years. Also, another thing to keep in mind is that agencies are in the market all the time. They are there through the highs and lows. If you look at the pandemic this past year, most banks pulled back. The agencies did not. They were still lending. Plus, they do deals throughout the country — not just in large markets. We work with our clients to make sure that the lending solutions JPMorgan Chase offers best meet their needs and align with their plans. Working with the agencies allows us to do that. Borrowers should be thinking about more than just the loan, though, and should look to find a team that has a lot of experience and can provide holistic solutions. 

What agency lending products are available from JPMorgan Chase, and what are some advantages of each?

We have customizable floating-rate as well as fixed-rate products. Let’s say you’re a client who wants a 10-year deal, but you’d like the flexibility of getting out after seven. We can structure it as a 10-year deal and only have the yield maintenance until the seventh year, and then you have a prepayment of 1 percent or  zero. You can do transactions with terms of five, seven, 10, 12, even 15 years and up, to 75 or 80 percent leveraged. We also have affordable products that are tailored specifically for “Big A” affordable housing, which are projects that have some type of rent or income restriction. They may have higher leverage, but they lean toward those types of transactions because it meets their mission. We have green products too, whether for solar or other forms of energy efficiency, and a program for healthy living where the agencies incentivize healthy options for residents. Pretty much any type of financing you’re looking for on a permanent loan basis, the agencies have it and we can customize it.

Who are the ideal customers of agency lending?

Experienced multifamily housing operators. Our sweet spot is clients in the $7 million to $50 million range. We do bigger deals as well, but that range is where we can play a really effective role — with experienced operators who have a solid track record and may have use for JPMorgan Chase’s other solutions, like treasury services. Great customers are those who have projects that are aligned with the agency’s mission — for example, creating workforce housing or naturally occurring affordable housing.

What are some of the conditions that would make agency lending the right choice for borrowers?

We’re most effective on longer-term, fixed-rate deals where clients have a property they want to own for a long period of time. They want to lock it away and take advantage of these low rates for 10, 12, 15 years — even 30-year fully amortizing deals. The shorter offerings will usually have some interest-only (IO) period, but the 30-year option is for clients who don’t want any IO. They just want to put it to bed: Rates are great, so let it amortize off. Agency lending works for clients at various leverage levels, but those looking for the best rates are usually in the 65 percent or lower leverage levels. They aren’t worried about getting their leverage any further down than where they are today. So, someone looking for a good interest rate for a longer period of time — ideally, more than seven years — we can be most competitive for them.

Are there specific conditions that make agency lending a less-than-ideal choice for certain borrowers?

This is where working with a bank like JPMorgan Chase can help a borrower identify if the conditions aren’t quite right. For example, we can help with construction where the agencies do not. And as more and more large borrowers are coming in with Single Asset Single Borrower (SASB) deals, that’s something that requires expertise from a strong banking partner.

But in short, yes, something that is super aggressive, where they want to get every last dollar out of the deal and put a lot of mezzanine debt or other stuff on it is not the best idea for agency lending. The agencies play there, but that’s not their sweet spot. There are other, more effective financing options for that. Also, for someone who really wants a short-term transaction on a loan less than five years, agency is not the best place for them. 

For those who go the agency lending route, what are some of the greatest advantages?

Consistency. When you go agency, they’re always going to be there. They’re transparent and quick. Also, we build a relationship over time. We want to grow with our customers.

What are some of the potential pitfalls agency borrowers should be aware of?

I wouldn’t call them pitfalls, but agency loan applications will ask a few more questions than others. They want to make sure you understand what you’re getting into. Agencies are basically turning bespoke loans into something that’s consistent across the board, so there’s a lot they need to ask. You’ll need to be very transparent and, honestly, experienced enough to answer. The only time there are pitfalls is when someone hasn’t communicated effectively. Open communication throughout the process is key to avoiding pitfalls.

Once a borrower determines that they want to go the agency route, what are some of the crucial steps they should take to prepare?

Step one is to call their banker, talk through the deal, and plan for the asset. As part of this conversation, we give clients a checklist of what we’ll need from them, which includes getting a good attorney to expedite the process. Getting the last three years of operating statements for their property is crucial for stabilized or refinancing. For new construction, we provide specific guidance. It’s also important to have current rent rolls and financial information available. Making sure to communicate any issues with the borrower, their company, or the property is necessary.