What We’ve Seen So Far: Five Updates From the Small Loans Market in 2021

September 30, 2021

What We’ve Seen So Far: Five Updates From the Small Loans Market in 2021

September 30, 2021

Berkadia Small Loans launched in 2019, adding yet another specialty financing product to Berkadia’s slate of mortgage banking solutions. In the years since, it has been steadily growing, adding talent, resources, and tools as demand for GSE-sponsored small loans has continued to expand. The pandemic shifted the landscape somewhat, adjusting requirements and considerations for borrowers, but with COVID measures pulling back, appetite is flowing again. When we think about what’s ahead for the market, we’re focused on five key areas of opportunity.


We’ve been surprised, and pleased, at how quickly both agencies have rolled back requirements precipitated by COVID. The waning of the pandemic has helped return confidence, and small loan borrowers are eager for opportunities. As such, in addition to banks and life companies re-entering the market, we’ve seen new competition enter the market, such as debt funds, which makes sense, since for the right sponsor, Small Loans has always been an underserved market.


Fannie Mae and Freddie Mac are expanding beyond their traditional Gateway market focus to more secondary and tertiary markets. At present, it may be easier to get an execution done smoothly through a non-Gateway market. It is difficult to reconcile collections on properties of less than 10 units (a small loan sweet spot), which has been made harder by the challenges and legislative responses to COVID, particularly in Gateway market cities like Los Angeles and New York. This shift creates opportunities for borrowers, as we’re seeing demand for multifamily outside of top markets increase based on renter migration trends.

At Berkadia, our activity is up exponentially from last year, and we’re closing deals in more markets than ever before. We expect to keep this momentum through the end of the year.


The small loans space is an interesting one, because it sees a lot of different business and a much greater range than the larger loan conventional space. We see engagement from well-established, larger sponsors who may be very familiar with the GSE loan processes at a larger scale, and from newer, smaller sponsors who may be considering a GSE execution for the first time, having either no existing lender relationship or relied on local banks previously, and everything in between.

For those newer, smaller sponsors that meet the minimum requirements (two-year track record with at least three multifamily properties, etc.), streamlined loan documents tend to be preferred and borrower structure is often simpler, making for a great fit within the agency Small Loan programs, often offering more leverage and better terms than local banks. Additionally, a majority of this business tends to be Class B/C workforce housing, which typically equates to more affordable rents or mission driven business, and is favorable in the eyes of the agencies, meriting better pricing. Today Freddie Mac OptigoSM Small Balance Loans is the most likely program for a new operator’s first agency deal. (Coincidentally, Berkadia’s application to funding timeline is among the shortest for Freddie Mac OptigoSM Small Balance Loan providers.)

We find it especially exciting to work with clients like this, because at this stage we’re most able to help them accelerate their growth. Small loans is a great entry point to understand and leverage agency executions and we are thrilled to help introduce clients to these tools as they look to grow and expand their multifamily footprint.


Like many across the financing industry, we’re eager to see how new FHFA leadership will affect the mandates for Fannie Mae and Freddie Mac going forward. We’re tracking the conversation closely, so that we can be best prepared to help clients navigate any changes on the horizon.

Overall, our outlook remains positive for the direction of small loans. FHFA released proposed goals last month that demonstrate an increased focus on properties between 5 and 50 units with Low Income (LI) units, or rents at or below 80 percent of AMI.  Our work often naturally falls in the category of mission driven—small loans tend to be a good tool for owner/operators of multifamily housing that meets Affordable guidelines—so as the year draws to a close, we hope to gain more allocation of each agency’s cap for 2022.


We’ve seen huge growth in the small loan space, driven by the great products and executions that Fannie Mae and Freddie Mac offer, and there is a tremendous opportunity to help customers find the right solutions by providing the best insight, resources, and technology to address their financing needs.

We’re always working on creating a smoother execution from start to finish—our goal is to have the most seamless and streamlined loan process for clients. In expanding our footprint, our agency small loan financing expertise and our resources, we will continue to better support clients across the country in achieving their long-term success.

-Christine Pratt, Head of Small Loans Origination