The loan gives the borrower interest-only payments on 736 units in four properties for the first 10 years of the 30-year mortgage.

The funding is through Freddie Mac's AAA-rated, variable-rate bond credit enhancement program. The deal replaces the previously fixed (7.15%), privately placed tax-exempt bonds that were not fully paid. The effective interest rate is expected to be under 7%, but Freddie Mac didn't disclose that number, according to a prepared statement from Collateral.

"The interest rate is adjustable, as the AAA-rated bonds are re-marketed weekly to determine the applicable payments from the borrower," says Collateral senior real estate analyst Todd Elkins.

"As usual with variable rate bond deals, there are several moving parts," Elkins says. "Bringing all of the pieces together is typically the most significant challenge."

One of the key factors in getting the transaction completed was a favorable credit enhancement fee, which was "approximately 25 basis points less than the enhancement fees quoted by the commercial banks competing for the deals," says Elkins.

The analyst says the deal was done because the borrowers were "experienced and patient with impeccable credentials, four outstanding properties, a low-leveraged transaction and Freddie Mac, a flexible investor."

In the same statement, Douglas Westfall, director of Freddie Mac's Multifamily Affordable Housing Group, says the borrower "appreciated our ability to offer a variable-rate, partial interest-only structure because it offers flexibility and long-term commitments, should the borrower choose not to refinance after the interest-only period ends."

The four properties are the 268-unit Forest Ridge Apartments, Birmingham, constructed in two phases, 1983 and 1986; 95.9% occupied; the 200-unit Woodbrook Apartments, Glendale, AL, built in 1986; 97.44% leased; the 172-unit Ascot Place Apartments, Birmingham, built in 1986; 93.6% occupied; and the 96-unit Meadow Wood Apartments, Pelham, AL, built in 1986; 96.5% leased.