Single Asset Substitutions

 

Fannie Mae’s Single Asset Substitution option provides a Borrower the ability to replace the original mortgaged property securing its Fannie Mae DUS Loan with another mortgaged property while keeping the existing DUS Loan in place.

 Benefits of Single Asset Substitution 

Borrowers want:	Single-Asset Substitution delivers:
Flexibility in managing their portfolio of properties	Sell or exchange a property without having to arrange new financing
Ability to keep attractive financing terms in place	Maintain low-rate financing if rates rise Existing loan terms do not change
Alternative to prepayment	Keep existing loan in place without payment of prepayment fees

                                   

Eligible Lenders

All DUSTM lenders may offer Single Asset Substitutions.

Eligible Borrowers (Sponsors)

In order for a DUS Loan to be approved for the Single Asset Substitution option, the loan’s Borrower/Sponsor must meet certain criteria. Generally, Single Asset Substitutions are available to high quality national and regional Sponsors that own a portfolio of multifamily properties and demonstrate sufficient financial strength and experience to support the substitution transaction.

Eligible Products

Conventional fixed-rate mortgages for the acquisition or refinance of stabilized multifamily properties, including Fixed+1TM, are eligible for Single Asset Substitution.

Single Asset Substitution is not available for Multifamily Affordable Housing Loans, New Construction and Substantial Rehabilitation Loans, and Bond Credit Enhancements.

Minimum Loan Amounts

The original loan amount of the DUS Loan must be greater than or equal to $5 million.

Loan Term

Terms ranging from 7 to 10 years are available, including Fixed+1™ loans with a term of at least 8 years.

Executions Available

Cash only.  DUS MBS is not available.

Timing and Notice for Substitution

Substitution may only occur once during the life of the DUS Loan. Borrower must submit a written request at least 60 days prior to the proposed release date of the original mortgaged property. A substitution can occur anytime after the first year and before the three years prior to the maturity date of the DUS Loan. 

Delivery of Substitute Property

The new substitute mortgage property must be delivered to Bulls Capital Partners (“BCP”) in a timely fashion and in accordance with the requirements outlined in the loan documents in order to enable release of the original mortgaged property. If release is required before the new substitute mortgage property can be delivered, Gap Collateral (see below) can be posted for up to 90 days to allow for underwriting and delivery of a qualified new substitute mortgage property.

Gap Collateral

If the new substitute mortgage property is not ready to be delivered when the request for a Substitution is made, a Borrower can post Gap Collateral for up to 90 days to allow for underwriting and delivery of the new substitute mortgage property. In these cases, at the time the lien of the original mortgaged property is released, the Borrower must provide a cash deposit or a Letter of Credit in the amount equal to:

      i)    the outstanding unpaid principal balance of the loan at the time of release, plus

      ii)   accrued and unpaid interest on the loan as of the time of release, plus

      iii) three scheduled monthly debt service payments, plus

      iv)   the applicable yield maintenance amount that would be due if the loan was prepaid at the time of release.

At BCP's discretion, additional funds may be escrowed to cover anticipated costs, including an underwriting due diligence deposit.

Underwriting

Delivery of the proposed substitute mortgage property is subject to review and approval by BCP and Fannie Mae prior to release of the lien on the original mortgaged property. Full underwriting according to the standard DUS requirements is required for the substitute mortgage property at the time of substitution. Specifically, at the time of substitution, the Sponsor must demonstrate that the performance of the proposed substitute mortgage property is “as good or better” than the original mortgaged property with regard to net operating income (amount and growth rate), DSCR, LTV, physical condition, ability to refinance at maturity and general market characteristics. Standard DUS representations and warranties must be made when the substitute mortgage property is delivered.   

Maximum LTV

The loan-to-value ratio (LTV) of the proposed substitute mortgage property, based upon a current appraisal, must not exceed the lower of:     

     •     Current LTV of the original mortgaged property using a value generated and     justified by BCP and acceptable to Fannie Mae, or

      •     Origination LTV of the original mortgaged property, or

      •     Underwriting Tier-level LTV of the original mortgaged property.

 

In cases where one or more Supplemental Loans are in place prior to the substitution request, the combined unpaid principal balance of the DUS Loan and all Supplemental Loans will be used to calculate LTV.

Minimum DSCR

The debt service coverage ratio (DSCR) of the proposed substitute mortgage property must must not be less than the greater of:

•    Current DSCR of the original mortgaged property, or

      •     Origination DSCR of the original mortgaged property, or

      •     Underwriting Tier-level DSCR.

 

In cases where one or more Supplemental Loans are in place prior to the substitution request, the combined debt service of all loans will be used to calculate DSCR.

Partial Prepayment

In some cases a partial prepayment of up to 15% of the current unpaid principal balance of the original loan may be permitted in connection with a Substitution. Any partial prepayment must be accompanied by the prepayment premium due under the Note on the amount prepaid. 

Supplemental Loans

A DUS Supplemental Loan may be placed on the substitute mortgage property at the time of Substitution, subject to the standard DUS underwriting requirements for supplemental loans. No Tier dropping is permitted.

Substitution Fees

The Substitution fee will be 1% of the unpaid principal balance of the DUS Loan at the time the lien on the original mortgaged property is released. The Borrower will also be responsible for any reasonable out-of-pocket expenses incurred by BCP in connection with the Substitution, including legal, underwriting, and due diligence costs.

Assumptions

If the original DUS Loan is to be assumed, the Single Asset Substitution option does not automatically transfer to the new Borrower. Continuation of the Single Asset Substitution option on assumed loans will be allowed only with the prior consent of Fannie Mae.

Contact

To learn more about the Dedicated Student Housing product borrowers should contact Herman Bulls, CEO, or Mark Van Kirk, CFO/COO, at Bulls Capital Partners at (703)848-8001.