Apartment

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    $4,500,000 Acquisition Bridge Financing for the Condominium Conversion of a Historically Designated Trophy West Hollywood Apartment Building

    August 16, 2017

    Transaction Description:
    George Smith Partners arranged $4.5 million in bridge financing for the acquisition and condominium conversion of Patio del Moro, a seven-unit, historically designated trophy apartment property located in the heart of West Hollywood just one block south of the Sunset Strip. The sponsor’s business plan contemplates converting the apartment property built by famed developers Arthur and Nina Zwebell in their signature Spanish Courtyard style into a condominium complex and selling off units individually as condominiums to end users. This transaction was structured with a $3,500,000 initial advance and a $1,000,000 holdback with no negative arbitrage for condominium conversion fees, property rehab and interest reserve. Sized to 64% of total cost, the bridge loan is interest only and floats at Prime plus 0.5% for its 18-month term. The loan carries no prepayment penalty. Partial releases are subject to a 125% of par pay down and are not subject to a full cash flow sweep. The lender fee was a low 35 basis points.

    Challenges:
    West Hollywood is among the most challenging submarkets for re-entitlement in all of Southern California. Moreover, the property is historically designated, adding an additional layer of required approval, and is under-parked based on current condominium parking requirements. The project is also one of the first condominium conversions to occur since the Great Recession, so there is no recent precedent to fall back on. Finally, the project’s total cost is estimated at $7,000,000 equating to a high basis of $1,000,000 per door.

    Solution:
    George Smith Partners compiled a sales survey demonstrating robust demand for high priced condominiums in West Hollywood and surrounding areas, including recent sales in other Zwebell projects that were condominium converted over a decade ago. Moreover, George Smith Partners also highlighted the sponsor’s significant condominium conversion and real estate investment experience outside of Southern California. By demonstrating these items and leveraging its extensive capital markets relationships, George Smith Partners was able to identify a low cost capital provider that was comfortable with the deal’s entitlement risk and high basis per door.

    Rate: Prime +.50% (4.75% Today)
    Amort: Interest Only
    Term: 18 Months with one 6 Month Extension for a 0.15% Lender Fee
    LTC: 64%
    Partial Release Provision: 125% of Par
    Prepayment Penalty: None
    Lender Fee: 0.35%
    Guaranty: Recourse

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    $12,000,000 Non-Recourse Acquisition Bridge Financing on a 1970’s 300-Unit Workforce Multi-Family Property in the Pacific Southwest

    August 9, 2017

    Transaction Description
    GSP successfully arranged $12,000,000 in first mortgage debt for the acquisition and reposition of a 300-unit workforce multifamily asset in the Pacific Southwest. The national balance sheet lender provided a non-recourse loan up to 70% of total project cost that includes funding 100% of future planned expenses (approximately $3,500,000) to upgrade the property’s common area amenities and interiors and implement a green and energy saving initiative. Interest expense is not incurred on the capital improvement funds until drawn. Borrower cash flow is maximized as the loan is interest only during the initial three-year term. Additionally, lender structured an interest reserve to cover a debt service shortfall during the peak reposition period.

    Rate: 30-Day LIBOR + 5.15%
    Term: 36 months plus two 12-month extensions
    Amortization: 36 months interest only; 30-year amortization thereafter
    Loan to Cost: 70%
    Prepayment: 18-month minimum interest with a 0.5% exit fee thereafter
    Guaranty: Non-recourse
    Lender Fee: 1.00%

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    $15,300,000 Non-Recourse Multifamily Construction Loan for a 97-unit apartment community in Chula Vista, California

    July 31, 2017

    Transaction Description
    George Smith Partners secured $15,300,000 in ground up senior construction financing for a to-be built 97-unit apartment community in Chula Vista, CA. The Sponsor was seeking capital to cover all hard costs, in addition to some soft costs, for the project. The subject, which is directly west of the Interstate 805 Freeway and roughly three miles east of the Interstate 5 Freeway, will be built using a “stone creek” concept to match the ascetics of the surrounding environment. In addition to the luxurious ambiance, the project will include lush amenities. A park will be dedicated to the project with barbeque and picnic areas. There is a protected creek running through the land which will be enhanced to embellish the “Stone Creek” concept. The financing structure secured by George Smith Partners allowed the Sponsor to complete the ground up development in one phase.

    Challenges
    The main challenge encountered in the capital markets was the scope of the project in relationship to the Sponsorship group’s track record. Many capital providers were concerned that the ground up component of the project required a Sponsorship group with more experience in the field.

    Solution
    George Smith Partners used its extensive capital market relationships, knowledge, and resources in order to identify the right capital for the project. Once the right lender was identified, GSP addressed the lender’s concerns surrounding the scope of the project by demonstrating the strength of the General Contractor.

    Rate: 30-day LIBOR+ 4.80%,
    Term: 30 months with Two (2) separate consecutive six (6) month extensions
    Amortization: Interest Only for initial term
    LTV: 60%
    LTC: 65%
    Origination Fee: 1.00%
    Exit Fee: None
    Guaranty: Non-Recourse with completion guaranty

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    $12,000,000 Non-Recourse Acquisition Bridge Financing on a 1970’s 300-Unit Workforce Multi-Family Property in the Pacific Southwest

    July 26, 2017

    GSP successfully arranged $12,000,000 in first mortgage debt for the acquisition and reposition of a 300-unit workforce multifamily asset in the Pacific Southwest. The national balance sheet lender provided a non-recourse loan up to 70% of total project cost that includes funding 100% of future planned expenses (approximately $3,500,000) to upgrade the property’s common area amenities and interiors and implement a green and energy saving initiative.  Interest expense is not incurred on the capital improvement funds until drawn.  Borrower cash flow is maximized as the loan is interest only during the initial three-year term.  Additionally, lender structured an interest reserve to cover a debt service shortfall during the peak reposition period.

    Rate: 30-Day LIBOR + 5.15%
    Term: 36 months plus two 12-month extensions
    Amortization: 36 months interest only; 30-year amortization thereafter
    Loan to Cost: 70%
    Prepayment: 18-month minimum interest with a 0.5% exit fee thereafter
    Guaranty: Non-recourse
    Lender Fee: 1.00%

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    75% of Cost Acquisition and Re-position Financing on a 1960’s 36-Unit Multifamily Property in Long Beach, California

    July 19, 2017

    George Smith Partners arranged $7,400,000 in non-recourse bridge financing from a national balance sheet lender for the acquisition and re-position of a 36-unit, 1960’s multifamily asset located within one block of Long Beach’s trendiest neighborhoods. The 75% of total project cost loan includes $1,300,000 ($36,000/unit) of future capital expenditures for unit and property upgrades and there is no interest charged on unused allocated capital expenditure funds.

    The loan is structured with an increasing exit fee in lieu of an upfront lender origination fee to minimize upfront costs and incentivize the Borrower to execute the business plan in a timely manner. However, the three-year initial term protects the Borrower from impending maturity in the event that the renovation takes longer than projected.  After an initial 12 month spread maintenance period, the exit fee is 1.33% for months 13 through 24, increasing to 1.66% for months 25 through 30 and 2.00% for months 31 through 36.

    Borrower cash flow is maximized as the loan is interest only during the initial three-year term.  The interest reserve covers debt service shortfalls during the re-position period.

    Rate: 30-Day LIBOR + 5.00%
    Term: 3-years plus two 12-month extensions
    Amortization: 3-years interest only; 30-year amortization thereafter
    Loan to Cost: 75%
    Prepayment: 12-month yield maintenance; open thereafter subject to 1.33% exit fee through month 24, 1.66% exit fee through month 30 and 2.00% thereafter
    Guaranty: Non-recourse
    Lender Fee: 0.00%

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    $26,500,000 Multifamily Non-Recourse Refinance & Cash Neutral Purchase

    July 12, 2017

    Transaction Description
    George Smith Partners secured $26,500,000 in proceeds for the refinance of a 163-unit mixed-use multifamily and retail property in Hollywood, CA along with the simultaneous purchase of the adjacent 9-unit multifamily rental. With the merging of the two assets, the two parcels would be combined and managed as one to establish economies of scale. The non-recourse loan floats at 30 day LIBOR + 4.25% for a period of three years; and offers two additional one year extensions. Sized to 80% of value and 80% of cost, the loan was structured with $24,600,000 in initial funding and $1,900,000 in hold-backs for capital renovations. No additional cash equity was required for the new acquisition of the adjacent 9-units – this transaction was cash neutral to the Borrower. Funding occurred in 30 days from the date of the term sheet.

    Challenges
    A number of challenges were encountered when discussing the transaction with capital sources. Our Sponsor had acquired the 163-unit property two years prior with bridge financing. Several lenders were hesitant to repay this loan with another bridge loan, yet offer the requested loan proceeds for the new acquisition. The off-market acquisition was problematic to comp out for the appraiser as a stand-alone execution. An earthquake risk assessment (PML) report mandated the purchase of earthquake coverage for the new purchase. A tight timing parameter on the Purchase & Sale Agreement mandated a quick response.

    Solution
    GSP documented the success of the current operations and the Sponsor’s ability to dramatically improve the net cash flow on the larger 163-unit property since that acquisition. This proven track record convinced our capital provider of the merits and future upside potential to support the replacement of the current bridge debt with a new bridge loan. A detailed operating budget post-merger sharing common space and amenities and reduced per-unit operating expenses allowed the appraiser to substantiate his valuation of both parcels. Capital improvement funds were reserved and allocated to complete an earthquake retrofit. Our Sponsor was granted one year to complete the retrofit to avoid the expensive cost of the insurance. Earthquake coverage was not a condition to fund. An all-hands expedited process facilitated the 30-day close requirement of the Purchase & Sale Agreement.

    Rate: One month LIBOR + 4.25%
    Term: 3 Years with two 1 Year Extension
    Amortization: Interest Only
    Prepayment Penalty: 15 months
    LTV: 80%
    LTC: 80%
    Origination Fee: 0.825%
    Exit Fee: 0.25%
    DCR: 1.0
    Guaranty: Non-Recourse

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    $11,400,000 Cash Out Refinance of a Four Building Multifamily Portfolio in Los Angeles

    July 5, 2017

    George Smith Partners arranged the $11,400,000 refinancing of a portfolio of four multifamily properties in Los Angeles. GSP not only was able to identify a local lender who was comfortable providing $3,200,000 cash out to the sponsor, but also successfully executed the strategy of a portfolio refinance in which the lender could become more aggressive with both rate and proceeds. Additionally, in a volatile interest rate environment, GSP was also able to time the market and lock rate at the ideal moment, achieving the best possible pricing for the sponsor. The recourse loan represents 75% of the portfolio’s value and has a 30-year term with the first 5 years fixed. The loan will reset every 5 years and self-liquidates over the course of the term.

    Rate: 3.95%
    Term: 30 years with the first 5 years fixed; resets every 5 years thereafter
    Amortization: 30-year amortization
    Loan to Value: 75%
    Prepayment: 3,2,1
    Guaranty: Recourse

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    5 Day Quick Close Acquisition Bridge Loan for 5 Unit Property in South Los Angeles

    June 27, 2017

    Transaction Description
    George Smith Partners arranged a quick close acquisition bridge loan for a 5-unit property in South Los Angeles. The sponsor approached GSP with an extremely tight closing time frame of 5 days and a property with weak cash flow due to two down units. The sponsor valued certainty of execution above all else, so he could close on the property in short order. GSP identified a non-bank private individual willing to make the loan with no origination free. Sized to 80% of purchase with no hold back requirement for interest reserve or capital expenditures, the loan carries a 12-month term, interest only payments at a 9.5% rate and a 3-month prepayment penalty.

    Rate: 9.5% Fixed
    Term: 12 Months
    Amortization: Interest Only
    LTV: 80% of Purchase / 65% of Stabilized Value
    Guaranty: Recourse
    Prepayment Penalty: Three Months
    Origination Fee: Par

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    $33,700,000 Cross Collateralized Refinance of Two Multifamily Properties in Southern California

    June 27, 2017

    Transaction Description

    George Smith Partners secured a $33,700,000 refinancing loan for two multifamily properties in Southern California. The 10 year loan with 5 years interest only, priced at 10 Year Swaps + 2.30 (4.41% coupon), replaced expensive high leveraged bridge debt. The loan was cross collateralized with both properties, which totaled 397 units. The two very different properties consisted of a 97 unit trophy asset overlooking the ocean and a less well located 300 unit property with a higher cap rate.

    Challenge

    For the 97 unit trophy asset, the sponsor’s proceeds requirement to refinance the preceding high leveraged bridge debt could not be met by a conventional lender, including agency lenders. This was because the property’s extremely low cap rate and debt yield constrained the potential loan size, therefore hindering the property’s ability to refinance its current debt.

    Solution

    GSP understood the diverse property dynamics of each asset and developed the strategy of cross collateralizing the two assets. GSP recognized the upside in presenting the properties as a “package deal”, particularly as it related to solving the debt yield challenge. By crossing the two properties, GSP synthetically created a debt yield in the sweet spot of most lenders. At the same time, lenders became more comfortable with the less well located building because it was being bundled with a trophy asset with an irreplaceable location. Additionally, GSP knew by bundling the properties together and creating a larger transaction that lenders would be prone to increase proceeds and decrease pricing, as compared to two separate smaller transactions. GSP ultimately was able to identify and place incredibly aggressive bond financing, which was appealing because of its leverage, proceeds, and 5 years of interest only.

    Rate: 10 Year Swaps + 2.30% (4.41% Coupon)
    Term: 10 Years
    Amortization: 5 Year Interest Only – 30-Year Amortization Thereafter
    LTV: 70%
    Guaranty: Non-Recourse
    Prepayment Penalty: Defeasance

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    $16,250,000 Ground-Up Construction Loan Fixed for Seven Years at 4.0%

    June 14, 2017

    George Smith Partners facilitated the seven-year fixed-rate construction loan for the ground-up development of 60 Los Angeles “For Rent” housing units.  As part of this capitalization, GSP placed the land acquisition debt in 2015.  Sized to 75% of actual development costs, this institutional capital provider will fund all draw requests at the 4.0% rate that was locked at application.  Interest is paid as drawn; there is no negative arbitrage.  The ten-year term negates the need to process a mini-perm upon Certificate of Occupancy and removes future interest rate risk.  The recourse loan is fixed for seven years at 4.0% and floats at 275 over LIBOR for the remainder of the ten-year term.  Prepayment steps down; 2,2,1,1 open.

    Rate: 4.0% fixed
    Term: Ten Years Fixed for Seven Years
    Amortization: IO During Construction; 27.5 Years thereafter
    Loan to Cost: 75%
    Prepayment: 2,2,1,1
    Loan Fee: 1.0%
    Guaranty: Recourse

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    $2,150,000 Senior Construction Financing for a 5 Unit Small-Lot Subdivision Project in North Hollywood, California

    April 19, 2017

    Transaction Description

    George Smith Partners successfully structured the ground-up construction debt for a 5 unit small-lot subdivision project near the North Hollywood Arts District. Sized to 70% of cost, the 18 month loan (with six-month extension option) is priced at PRIME + 0.75% with a 5.25% floor rate.

    The Project consists of large three story units (1,750 SF+), with attached two-car garages and open floor plans. Product of this quality is in high demand in the area, but the small-lot format is new to the North Hollywood area. It was incumbent on GSP to support the value with market data and new construction. GSP identified a local construction lender with an understanding of the Los Angeles market, and an appetite for small-lot product.

    Rate: PRIME + 0.75% (5.25% floor)
    Term: 18 Months
    LTC: 70.0%
    Recourse
    Lender Fee: 1.00%

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    $1,253,000 Acquisition Bridge Loan at a 4.50% rate

    April 12, 2017

    Transaction Description
    George Smith Partners arranged a $1,253,000 bridge loan for the acquisition of an 8-unit, value-add multifamily property in Long Beach, California. Sized to 70% of total project cost, the loan includes 100% of future funding for property renovation, which includes a full gut renovation of unit interiors and an exterior upgrade. The two year bridge loan is interest only and floats at Prime plus 0.5% with no prepayment penalty. Interest is not charged on the hold back until funds are drawn and the lender fee was 0.5%. The property is located in an area of Long Beach that is within a growth corridor, but has yet to gentrify.  The sponsor’s plan includes noticing all below market leases in a fairly short window. By emphasizing the sponsor’s track record of re-positioning similar properties as well as current market rents and occupancy, GSP was able to assist the lender in gaining comfort with the market. The loan was structured with an interest reserve to mitigate the property’s weak cash flow during the renovation period. The loan closed in 45 days from start of application.

    Term: 2 Years
    Rate: Prime + 0.5%
    Amortization: Interest Only
    Prepayment Penalty: None
    LTC/LTV: 70%/65%, including 100% of future funding and interest reserve
    Origination Fee: 0.5%
    Guaranty: Recourse