Did you know that the earliest documented evidence of loans dates back to around 2000 BCE in Mesopotamia, where “payday loans” were utilized by farmers? While the nature of lending practices before this time is unknown, this marks the earliest recorded instance in history. [1][2]

The journey of the loan, from Bronze Age wheat farmers to present-day banks and credit unions, has been lofty and eclectic. Loans have evolved from formal lending practices and institutions to the advent of modern mortgages, credit card systems, and online lending.

Debt financing, such as a bank or agency loan, can increase a buyer’s purchasing power. Debt benefits real estate owners and developers when the returns a property can generate exceed the cost of debt service. [3] There are many different types of debt (loans) for multifamily properties, including, but not limited to, bridge, CMBS, government-backed loans, and mezzanine debt used to supplement senior financing. This article highlights the key components of the most common multifamily loan types:

BRIDGE LOANS 

• Bridge loans can be a short-term financing solution to purchase or refinance commercial multifamily properties. 
• Bridge loans are typically used when a borrower needs to “bridge” the gap between purchasing a property and stabilization to obtain permanent financing.
• In most cases, bridge loans serve as senior debt in the capital stack, providing immediate funding until the property stabilizes or another financing event occurs.
• A bridge loan would take up senior and mezzanine positions in the capital stack, representing total debt.
• Bridge loans are often used for “repositioning,” which is the process of ultimately improving, rehabilitating, and renovating an underperforming property into a more profitable one. This can happen through physical value-add strategies and/or operational efficiencies.
• When buyers choose a bridge loan for financing, they generally do so because their proforma pencils a higher net operating income (NOI), which may not yet be reflected in the property’s financials at the time of acquisition. In these situations, a buyer generally would not want to lock in permanent financing. Permanent loans often come with stricter underwriting requirements and less flexibility, which can limit your financing options before the property stabilizes. On the other hand, bridge loans are designed for this transitional phase; they offer more flexible terms and can reduce the equity necessary to close a deal. Once NOI improves and the property stabilizes, most owners will refinance into longer-term, permanent financing, locking in terms based on the property’s optimized financial performance.
• Bridge loans are typically offered in 12-, 24-, and 36-month terms.

AGENCY LOANS 

• Agency loans are typically more nuanced than conventional bank loans because they are backed by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac. [4] 
• Fannie Mae is a government-sponsored enterprise (GSE) that buys mortgages from lenders. This frees up money for lenders to make additional loans and inject liquidity into the lending industry.
• Freddie Mac is a similar government-sponsored enterprise that purchases loans from lenders to replenish its supply of funds known as the Federal Home Loan Mortgage Corporation (FHLMC).
• The core difference between Fannie Mae and Freddie Mac is that the former primarily targets larger banking and lending institutions, while the latter primarily targets smaller banks and credit unions. However, both entities serve a similar purpose in supporting real estate lending in the U.S. housing market.
• Borrowers may opt for an agency loan since they can be a consistent funding source and are historically active during economic downcycles. [4]
• GSEs generally offer 5- to 10-year fixed-rate balloon loans. [4] In other words, borrowers pay a series of fixed-rate payments where the interest rate does not change for the duration of the loan. At the end of the loan term, the borrower makes one final, large payment, called a balloon payment, to pay off the remaining balance.
• Agency loans are also generally nonrecourse loans. [4] In nonrecourse loans, the lender is legally barred from pursuing recourse other than the agreed-upon collateral (i.e., the property). With nonrecourse debt, the borrower is not personally liable for the debt, which can reduce risk for borrowers. 
• Freddie Mac and Fannie Mae tend to have lower interest rates than other loan types but include more stringent terms, such as prepayment penalties, higher borrower qualification standards, and LTV limits. These terms aim to ensure that borrowers are qualified (capable of repayment) and avoid fraudulent behavior.
• Because of these requirements, agency loans are typically best suited for stabilized properties (a property that has reached favorable occupancy, income, and expense levels).
• A loan-to-value (LTV) ratio is the percentage of the first mortgage (senior debt) on a property divided by its value, and it is used to assess the risk of a loan. For example, a first mortgage of $6,500,000 on a market value of $10,000,000 represents a 65% LTV ratio. According to J.P. Morgan, “most agency loans are less than 70% LTV, but higher leverage may be available for certain property types and situations.” [4]

CMBS LOANS 

• CMBS stands for “commercial mortgage-backed securities.”
• A security is a financial instrument representing an investment and having monetary value. There are nonmarketable and marketable securities. Commercial mortgage-backed securities are generally considered marketable securities, meaning they could be traded on the market. A commercial mortgage-backed security is a fixed-income investment instrument backed by mortgages on commercial properties.
• Like agency loans, CMBS loans can provide nonrecourse financing for commercial multifamily properties valued at $2 million or more and with LTVs up to 75%. [5]
• CMBS loans are fixed-rate and can be less flexible than other loan types. However, they offer potentially less scrutiny for borrowers who do not meet agency requirements. The trade-off for less scrutiny is generally stricter prepayment penalties and standardized (i.e., inflexible) terms that cannot be easily changed after loan origination.
• Once issued, CMBS loans are securitized, sold, and traded on the secondary market alongside other CMBS loans. [6] This allows for risk diversification across multiple properties and enables investors to buy a piece of the entire pool of debt rather than a single loan.

BANK LOANS 

• Bank loans are traditional loans used for multifamily financing. They are among the most common loans banks and other financial institutions offer. [6] Banks or credit unions issue and hold these loans rather than selling them on the secondary market like agency or CMBS loans.
• Borrowers who opt for a conventional bank loan often intend to purchase or refinance a property.
• Bank loans can be offered at a fixed or floating interest rate, often requiring a substantial down payment, a positive track record, and a good credit profile. [6]
• Bank loans are ideal for borrowers with unique needs, as terms can be tailored to work in their favor.
• An advantage of obtaining a loan from your local bank is that they are familiar with your specific market and can provide a shorter loan application process.
• Bank loans can have higher interest rates than agency loans, and loan terms may be shorter or include more frequent requalification requirements.

OTHER TYPES OF LOANS 

• HUD loans are mortgages insured by the U.S. Department of Housing and Urban Development (HUD). [8] HUD loans are popular for commercial real estate and multifamily properties because they offer favorable financing terms, such as lower down payments and more lenient credit score requirements. [8] HUD loans can carry potentially lengthy loan terms (40+ years) and are fixed-rate and fully amortizing for the duration of the loan. [6]
• One of the most well-known HUD programs is the HUD 221 (d)(4) loan. This program is designed to finance renovation and ground-up development projects. While many construction loans are short-term and interest-only, HUD 221 (d)(4) loans are unique because they combine construction and permanent financing into one long-term loan, offering up to 43 years of fixed-rate, fully amortizing repayment. [7]

WHO DOES BAM CAPITAL PARTNER WITH FOR ITS DEBT FINANCING? 

The lender/bank is BAM Capital’s most significant partner in a real estate transaction. BAM Capital considers itself fortunate to have a preferred relationship with a publicly traded national bank, which gives it superior lending terms in the multifamily market.

WORK WITH BAM CAPITAL FOR MULTIFAMILY REAL ESTATE INVESTING

BAM Capital is a vertically integrated owner/operator that partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units.

Remember that no investment is risk-free. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.

Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect Bam Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Bam Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.

© 2025 Bam Capital. All rights reserved.

SOURCES:

[1]: iBusiness Funding. (2023). “A Brief History of Lending.” https://ibusinessfunding.com/resources/history-of-lending

[2]: Become. (n.d.). “A Brief History of Loans: Business Lending Through the Ages.” https://www.become.co/blog/a-brief-history-of-loans-business-lending-through-the-ages/#:~:text=The%20very%20earliest%20example%20of,evidence%20that%20we%20have%20recorded.

[3]: Crowdstreet. (n.d.). “ Leverage: The Double-edged Sword of Real Estate Finance.” https://www.crowdstreet.com/resources/investment-fundamentals/understanding-leverage-in-real-estate-financing 

[4]: J.P. Morgan. (2023). “Understanding agency lending for multifamily properties.” https://www.jpmorgan.com/insights/real-estate/agency-lending/what-is-an-agency-loan-why-use-it-for-multifamily-property

[5]: Janover Multifamily Loans. (2023). “Multifamily CMBS Loans.” https://www.multifamily.loans/multifamily-cmbs-loans/ 

[6]: Janover Multifamily Loans. (2024). “The Best Multifamily Financing Methods: Your Comprehensive Guide.” https://www.multifamily.loans/multifamily-financing/ 

[7]: Beach Front Property Management. (2024). “Multifamily Financing: An Overview.” https://bfpminc.com/multifamily-financing-an-overview/#1_Acquisition_Loans 

[8]: Google Generative AI. (2025). “What are HUD loans?” https://www.google.com/search?q=what+are+hud+loans