$2,150,000 Senior Construction Financing for a 5 Unit Small-Lot Subdivision Project in North Hollywood, California
April 19, 2017
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.
April 12, 2017
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.
April 12, 2017
George Smith Partners secured $5,625,000 in proceeds for the purchase of a 9,585 square foot, 12-unit multifamily property located in Malibu, CA. The loan is fixed at a rate of 3.95% for 5 years, then floats thereafter at 12 month LIBOR plus 2.5% for 10 years. The loan represented $468,750 per unit.
First, the buyer was purchasing the property at a very high price per unit. Second, the property had been fully renovated by the seller and only had six months of operating history. At the time of application, one unit was vacant and four units had short-term leases, including two units leased to corporate tenants. The seller was receiving rents that averaged over $6.00 per square foot which is common in Malibu, but much higher than most locations in Los Angeles. Finally, the property was located on the inland side of the Pacific Coast Highway and had a steep slope at the front of the property, which caused some lenders to be concerned with earthquake risk.
GSP was able to source a lender that was comfortable with all of the unique aspects of the deal. Although the selected lender had an LTV maximum of 50%, proceeds were considerably higher than other lenders which were constrained by a cap on loan per unit. Also, GSP was able to source rent comp data that showed the in-place rents were well supported. Thus, the lender was willing to provide a term sheet even with the vacant unit and short-term leases in place. Additionally, a previous owner had performed an extensive seismic retrofit on the property, which eliminated the need for earthquake insurance. Once in application, the loan closed in approximately 30 days.
April 3, 2017
George Smith Partners secured $7,600,000 non-recourse bridge financing for a 50% occupied class C multifamily property in a secondary market located in the Southwest. Proceeds included $2,127,000 for renovation on dilapidated units and capital expenditures as well as an interest reserve. The sponsor acquired the property with no reliable operating history utilizing a seller carry back note. Many of the tenants were late on their rent at the time of acquisition. The sponsor systematically put in place stricter underwriting for tenant qualification and value engineered a renovation budget. Most lenders were unable to understand the business plan, despite the sub-market being at 94% occupancy and the sponsor’s recent rentals already hitting pro forma with very light unit turn expenses. GSP identified a lender with extensive knowledge of multifamily re-positioning and became comfortable with the pro forma cash flow and stabilized value. In addition, the lender has capacity to offer a fixed rate permanent loan at stabilization to mitigate refinance risk.
$19,500,000 Acquisition and Reposition Financing with Low 5.00% Going-In Debt Yield on a Multifamily Property in Seattle, Washington
March 28, 2017
George Smith Partners arranged a $19,500,000 first mortgage on the acquisition of a value-add multifamily asset located within one of Seattle’s trendiest neighborhoods. The national balance sheet lender provided a non-recourse loan to 70% of total project cost including 100% of future capital expenditure funds to refresh the property’s exterior, interiors including living and common area spaces, and convert 13 furnished extended stay style “executive suites” to market-rate apartments. Interest expense is not incurred on future funding until drawn. Cash flow is maximized as the loan is interest only during the initial three-year term and priced at 4.50% over 30-Day LIBOR. Due to low going-in cash flow, the lender structured an interest reserve to cover debt service during the reposition period.
Rate: 30-Day LIBOR + 4.50%
Term: 36 months plus two 12-month extensions
Amortization: 36 months interest only; 30-year amortization thereafter
Loan to Cost: 70%
Prepayment: 18-month lockout; open thereafter subject to 0.50% exit fee
Lender Fee: 1.00%
$13,000,000 Los Angeles Ground-Up 59 Unit Multifamily Construction w/ Take-Out Fixed @ 3.20% at Commitment
March 22, 2017
George Smith Partners successfully structured the ground-up construction debt for a mixed-use 59 unit multifamily Los Angeles rental project that will include 2,000 square feet of ground floor retail. GSP identified a regional construction lender with a very unique construction & permanent loan in one package; the first five years are fixed @ 3.20%, inclusive of the construction phase. Interest is only paid on funds as drawn; there is no negative arbitrage for this fixed rate construction loan. The ten year term was sized to 63% of actual cost and Phase 1 of the loan will be interest only funded through a reserve until stabilized, which is estimated to be 30 months from ground-breaking. Upon lease-up, the loan automatically converts (Phase 2) to a mini-perm for the remainder of the five year at the same fixed rate at 3.20%, amortized over 27.5 years. Upon expiration of the initial five year term, the loan will float at 250 basis points over LIBOR for the remainder of the ten year term. Repayment guarantees burn down to 50% of the outstanding loan balance upon Certificate of Occupancy and drops to zero after the second year of stabilization. There are no additional fees or resizing tests at loan conversion from construction to mini-perm. Prepayment steps down: 2/2/1/1, with no prepayment penalty after the fourth year.
$1,075,000 Multifamily Cash-Out Refinance with Significant Return of Equity at a 3.70% Fixed Rate for 5 Years
March 15, 2017
George Smith Partners arranged a $1,075,000 cash-out refinance, including a 65% return of equity, at a 3.70% fixed rate on a multifamily property located in West Hollywood, CA. The sponsor, a Los Angeles based owner-operator, purchased the property less than two years ago and turned approximately half the units in the intervening period. Despite the limited ownership and lease seasoning, the Sponsor sought maximum cash-out proceeds to capitalize on the value unlocked through unit turns and to make new acquisitions. The sponsor also sought a fixed rate permanent loan to hedge against rising interest rates and a flexible prepayment structure to allow for a subsequent near-term refinance or sale, as additional value is unlocked through unit turns. GSP sourced a lender familiar with the market and underscored the submarket, the property’s additional upside and sponsor’s track record, which ultimately allowed the lender to get comfortable with the large return of equity. Sized to 65% of appraised value with a 1.20 DCR, the loan provided for a net return of equity of $425,000 to the sponsor. The loan, which carries a 15 year term and amortizes over 30 years, is fixed at 3.7% for the first 5 years of the term and then resets and floats at 300 basis points over 1-Year Treasuries for the remaining 10 year term. Sponsor’s application rate lock of 3.7% shortly after the election last year was honored by the lender, even though rates have moved significantly in the interim. Although the loan provides the benefit of a fixed rate, it carries no prepayment penalty.
March 1, 2017
George Smith Partners secured $7,150,000 for the purchase of a 29-unit multifamily property in Pasadena, California. Sized to 65% of purchase, the 5-year loan was priced at a floating rate of Prime plus 0.50%, with a floor rate of 4.25%. The loan has 2 years of interest only payments with a 30-year amortization schedule following thereafter. GSP closed the loan less than 30 days after the application was filed.
The Sponsor acquired the property as part of a 1031 exchange and had 40 days to meet the exchange window. Despite the short timeline, the borrower wanted to secure bank pricing and was reluctant to consider non-bank lenders. In addition, the property was operating with units at below-market rents, despite the building’s location in a non-rent controlled area. Thus, in-place cash flow was not enough sufficient to satisfy traditional underwriting criteria for many potential bank lenders.
GSP sourced a bank that provided proceeds of 65% of purchase price. The selected lender was known to have certainty of execution and a quick close process. Our team was able to provide both rent and sales comps showing the huge amount of income upside in the property and demonstrating how the seller had not efficiently captured the value of the asset. The lender was able to overcome the low going-in DCR by requiring a payment reserve of $400,000, which will be released once the property’s DCR reaches 1.25. GSP also emphasized the sponsor’s recent success in increasing income and NOI at another multifamily property in a nearby market. By creating a sense of urgency among all parties, GSP was able to complete the transaction within the buyer’s short timeframe and close the deal just a few days before the expiration of the 1031 exchange.
March 1, 2017
Transaction Description: George Smith Partners successfully arranged the combined $63,400,000, 83% of total cost, non-recourse, construction financing for a 312 unit, 19 story high-rise, Class-A Multifamily over retail project in the downtown area of a major Southwestern MSA. The subject property will be located near major universities, offices, restaurants, and a growing arts district. This project represents one of the highest quality, most amenitized, and dynamic rental projects in this region.
Challenge: The Sponsor requested high leverage, non-recourse, construction financing on an asset class that at the time, and in this market, was a non-starter for most capital providers. The Sponsor had limited experience in the development of this specific asset class and was seeking leverage at a level that was a challenge for a single lender to get comfortable with.
Solution: GSP was able to demonstrate the compelling economics at the project level by showing the pent-up demand for this project type in this specific market, highlighting the barriers to entry with limited available land, and the singular quality of the location with proximity to places of employment, graduate level education, and a light rail line. The capital providers who stepped up, understood the value of this location, the cost basis and the Sponsor’s ability to deliver a product that is superior to competing properties in the market. The senior lender and third party mezzanine lender did not have an existing inter-creditor agreement in place prior to this transaction, but successfully structured an agreement. The final borrowing structure involved multiple entity-level-only guarantors for the limited guaranties that were required. GSP also assisted with two separate interest rate caps provided by a third party rate cap provider and placed with two separate institutions to protect from anticipated floating rates.
Rate: Terms are confidential
Term: 3 Years Plus 1 Year Extension
Amortization: Interest Only
- Advisors: Scott Meredith
February 8, 2017
George Smith Partners secured $9,550,000 in proceeds for the cash-out refinance of a 53 unit apartment building located in Los Angeles. The loan is fixed at a rate of 3.85% for a period of 7 years, then floats at 12 MAT + 2.75% with a floor of 3.85%. The 30-year loan offers 3 years of interest only payments followed by a 27-year amortization schedule. A challenge occurred when it was discovered that the property is located in a special study zone on the Hollywood Fault Line. As a result, some lenders declined the deal entirely, while others required a PML report and earthquake insurance depending on the result. GSP was able to source a lender that did not require a PML or other third party reports, which saved the borrowers a great deal of time and expense. The loan also went into application in mid-November at a time when most lenders’ rates had already jumped by 25 basis points or more. The lender accommodated the borrower by holding the rate long enough to allow the borrower to quickly lock in an extremely competitive rate.
$28,500,000 Non-Recourse Acquisition Financing on a Newly Stabilized Class-A 208 Unit Multifamily Property in Dallas, Texas
February 8, 2017
George Smith Partners successfully structured non-recourse acquisition financing on a 2015 constructed Class-A multifamily property coming out of lease up in Dallas, Texas. The property is located in a submarket with rising concessions and flattening rents due in part to significant supply coming online and seasonality. In order to provide the best execution for the sponsor in an unstable credit market, GSP identified a balance sheet lender whose confidence in the strong macro-market fundamentals allowed them to size the loan to a 7% in place debt yield despite the lack of operating history. The lender did not require an appraisal and locked rate at loan application, which minimized execution risk in a volatile interest rate environment. The seven year loan has a fixed coupon at the 7-year Treasury plus a spread of 1.95%, with one-year interest only before converting to a 30-year amortization schedule, allowing the borrower to maximize cash flow while the property continues to stabilize and concessions burn off. The loan has a flexible pre-payment schedule with four years yield maintenance then converting to a step down pre-payment schedule of 1.0%, 0.5%, 0.0% for the remaining three years of the loan term.
Rate: 7-Year Treasury + 1.95%
Term: 7 Years
Lender Fee: Par
Exit Fee: 4-years Yield Maintenance, step down pre-pay thereafter 1.0%, 0.5%, open.
Amortization: 1-Year Interest Only, 30-Year Amortization thereafter
January 4, 2017
George Smith Partners arranged $2,546,000 in permanent debt for a five-unit luxury multifamily project in Hollywood, California. The property received certificate of occupancy and was fully leased as the construction loan neared its term. Built adjacent to Paramount Studios, luxury rentals of this quality are not common in the area. Although the property recorded full occupancy, due to its limited operating history and lack of comparable properties, securing the fully requested proceeds was challenging. In order to retain proceeds for our Sponsor, GSP supported the high dollar per unit loan request with substantial market data. Sponsor secured 100% of total construction cost financing at an interest rate of 3.61% fixed for five years with 15 years floating thereafter.