Unlocking Property Value Without Disturbing Your Agency Debt: A New Approach to Multifamily Financing

Many multifamily owners find themselves in a peculiar position in today's rising rate environment. They own valuable properties with historically low-rate agency debt but need additional capital for acquisitions, improvements, or other business opportunities. The traditional solution? Refinancing. However, with current rates significantly higher than what many secured just a few years ago, that option feels like leaving money on the table.

This is where an innovative financing approach is gaining traction among savvy property owners: accessing additional capital without disturbing existing agency debt.

## The Hidden Cost of Refinancing

Let's consider a recent case that crossed my desk. A successful student housing property in Mississippi secured agency debt at 4.10% in early 2022. The owners needed additional capital for a partner buyout, but refinancing would have meant giving up that attractive rate. With today's rates hovering around 6-7%, refinancing would have significantly impacted their cash flow and returns.

A Better Solution: Working Alongside Agency Debt

Instead of refinancing, we structured a $2.3 million preferred equity investment that allowed the owners to achieve their objectives while maintaining their existing agency debt. This approach preserved their low interest rate while providing the capital they needed.

This isn't an isolated case. We're seeing this strategy work across various scenarios:

- In Troy, NY, we recently provided $220,000 in preferred equity for capital expenditures while preserving the owner's agency debt

- A Washington, DC property accessed $910,000 for strategic renovations without touching their existing financing

- Another recent closing provided $1.5 million for portfolio improvements while maintaining the property's attractive debt structure

Why This Approach Works

The key advantage of this strategy is its flexibility. Property owners can:

- Keep their existing low-rate agency debt

- Access significant capital without adding liens to their property

- Maintain complete control over their property management

- Close quickly (typically within 7 days after diligence)

- Avoid personal credit impacts or new debt service coverage requirements

Understanding the Numbers

Let's break down why this matters. Consider a property with a $15 million agency loan at 4.10%. Refinancing at today's rates could increase annual debt service by hundreds of thousands of dollars. Our preferred equity solution allows owners to keep that favorable financing while accessing additional capital based on their property's cash flow.

Structure and Implementation

The process is straightforward:

1. We analyze your property's cash flow

2. Structure preferred equity based on available cash flow

3. Provide capital without disturbing senior debt

4. Set up simple monthly payments

5. Allow for flexible prepayment options

Real World Impact

Take our Mississippi case study: The property generates strong cash flow with a 1.25x DSCR even after our preferred equity investment. The owners maintained their excellent 4.10% rate on their $15 million agency loan while accessing $2.3 million in additional capital. This structure allowed them to execute their business plan without compromising their existing favorable financing.

Looking Forward

As interest rates remain elevated, this financing approach becomes increasingly valuable for property owners. It's particularly attractive for:

- Properties with below-market rate agency debt

- Owners needing capital for improvements or acquisitions

- Situations requiring quick closing

- Deals where maintaining the current debt structure is crucial

Taking the Next Step

If you're a multifamily owner with agency debt and need additional capital, this approach might be worth exploring. Whether you're looking to fund improvements, make acquisitions, or execute other business strategies, there may be a way to access the capital you need while preserving your existing financing.

To learn more about how this structure could work for your properties, submit your deal instantly at usenectar.com. Our team can quickly evaluate your situation and provide options that align with your business objectives while preserving your valuable agency debt.

Rylee Merrill Merrill is a Senior Originator at Nectar, where he works with CRE owners and operators nationwide to implement innovative financing solutions. With extensive experience in commercial real estate finance, he specializes in helping experienced operators optimize their capital structures and achieve their growth objectives.