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Freddie Mac Buys Its First Multifamily SOFR Loan


The transition from Libor has begun. Freddie Mac has purchased its first multifamily loan indexed to the Secured Overnight Financing Rate.

The loan involved the refinancing of a $20M bridge loan for Vintage Apartments, a 292-unit multifamily project in the Brookhollow/Inwood neighborhood of Houston.

SOFR is an interest rate that banks use to price U.S. dollar-denominated derivates and loans. It is in the process of replacing the London Interbank Offered Rate, or Libor, the benchmark rate used around the world for the last few decades.

The loan, closed by CBRE’s Houston office through its direct lending program with Freddie Mac, was purchased by Freddie Mac on Sept. 29. The 10-year floating rate loan indexed to SOFR was made to two commercial real estate investment companies in Houston.

“We found the process identical to closing a Libor loan,” CBRE Vice Chairman of Debt & Structured Finance Michael Thompson told Bisnow.

He said the process basically just entailed new language in the loan paperwork transitioning it from a Libor-based loan to the SOFR index. There was a more notable change for the borrower, however.

“As far as the cap purchase was concerned, the only difference was the cost,” Thompson said. “The cap was three basis points higher converting to SOFR. The sponsor was not concerned with the price delta for the cap given the overall spread remained the same, and the SOFR index was trading lower than Libor, resulting in a lower coupon.”

The loan used the first SOFR-based hedge to mitigate future increases in the index. All lenders who make floating-rate loans require an interest rate cap to mitigate the potential for the SOFR index to rise over time.

For the Vintage Apartments loan, the SOFR index yield at closing was 0.09%, and the borrower purchased a SOFR interest rate cap that had a maximum yield of 2%.

Regulators began questioning the accuracy of bank borrowing rates used to set the Libor benchmark years ago, as the data came from a small group of financial institutions.

In 2017, U.K. banks decided they would no longer require the use of Libor after the end of 2021. Around the same time, U.S. regulators and financial agencies decided that SOFR will replace Libor on the night of Dec. 31, 2021.

With between $200 trillion and $300 trillion in mortgages, consumer loans, corporate debt, CMBS and other derivatives tied to Libor, many lenders and borrowers have expressed concern about the uncertainty surrounding the future shift to SOFR, including changes in interest rates and the potential for litigation.

Including the loan for the Vintage Apartments, CBRE has closed five SOFR loans for a total of $118M and has another 45 loans under application with Freddie Mac and Fannie Mae for over $1.4B in aggregate loan amount.