Recourse debt allows the lender to pursue the borrower's personal assets if the loan defaults. Non-recourse limits lender recovery to the pledged property. Most permanent multifamily debt is non-recourse with "bad-boy" carve-outs.
Non-recourse is standard for agency and CMBS multifamily loans. Lender foreclosure is the primary recovery mechanism; borrower's other assets are protected.
"Bad-boy" carve-outs make the loan recourse in specific situations: borrower fraud, misrepresentation, waste, certain unauthorized transfers, or bankruptcy. These are designed to prevent bad actor behavior, not to convert routine defaults to recourse.
LA multifamily institutional acquisitions almost always use non-recourse financing. Private investor acquisitions sometimes use recourse bank financing for smaller deals at more favorable rates. The recourse/non-recourse choice affects both personal risk exposure and financing cost.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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