January 9, 2019
George Smith Partners placed the first major four property/228 unit Multifamily portfolio financing in Odessa/Midland, Texas. The non-recourse, fixed rate loan is priced at 5.8% fixed for 10 years at 75% LTV.
In 2013, Odessa was one of the fastest growing multifamily markets because of the oil/energy industry, even though it is one of the smaller MSAs in the country. In 2014 downward pressure on oil/natural gas caused a downturn in employment and real estate markets. Because of the market volatility only a limited number of lenders felt comfortable with the Odessa market. Before the rebound in 2018, apartment building values had fallen by over 20%.
GSP highlighted market potential based on the rebound in housing and employment and was able to identify a capital provider who was comfortable with this tertiary market and its’ recent rebound. Because of GSP’s extensive market knowledge we were able to lock-in a rate of 5.80% fixed for 10 years. GSP did research in the oil market and the MSA of the subject property and was able to prove to the Lender the future stability of the properties’ cashflows.
Acquisition Bridge Financing for a Vacant 10 Unit Multifamily Property in the West Adams submarket of Los Angeles; 70% Loan to Cost at a 5.75% Rate
December 19, 2018
George Smith Partners arranged acquisition bridge financing for a value-add multifamily property in the West Adams submarket of Los Angeles. The 10 unit 1970s vintage property was being delivered vacant and with significant deferred maintenance. The Sponsor’s business plan was to optimize the unit mix by reconfiguring the mostly two-bedroom one-bathroom units into a majority two-bedroom two-bath units. This would maximize square footage by enclosing the tuck under parking, which also eliminates the need for a soft story retrofit. Sized to 70% of total project cost, the loan includes 100% of future funding for 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% (5.75% today) with no prepayment penalty. Interest is not charged on the holdback until funds are drawn. Although the Lender’s appraisal came in weak and could have resulted in lower loan proceeds, GSP was able to work with the Lender to demonstrate the strength of market sales and rent comps to preserve the loan amount agreed to in the term sheet. The Lender fee was negotiated down to 0.5%.
Rate: Prime + 0.5%
LTC / LTV: 70% / 65%, including 100% of future funding
Term: 2 Years
Amortization: Interest Only
Prepayment Penalty: None
Recourse: Full Recourse
Lender Fee: 0.5%
- Advisors: Zachary Streit
December 19, 2018
George Smith Partners secured $5,918,000 in proceeds for the cash-out refinance of a 48-unit multifamily property located in Los Angeles. The return of funds represents a majority recapitalization of Sponsor purchase equity prior to their unit upgrade investment. Fixed at 4.58% for 10 years, the loan will amortize over 30 years. Proceeds were coverage constrained, sized to a 1.20x Debt Coverage Ratio on the actual mortgage constant. The loan provides for a stepdown prepay from 5%.
Since their acquisition, the Sponsor renovated the majority of units. Historical P&Ls demonstrated a recent decrease in collections during months when several units were under renovation. Several capital providers lowered their proceeds projections due to concerns about the cash flow stability. Los Angeles’ compressed capitalization rates consistently limit loan proceeds below 60% of value due to debt coverage constraints. A majority of local and regional lenders utilize a stressed mortgage constant for sizing, limiting proceeds further.
GSP demonstrated that the Property is now stabilized as compared to the immediate market and renovations are substantially complete. GSP identified a lender who underwrote to the in-place rent roll and allocated additional credit for achieving higher income on renovated units. RUBs and proforma laundry revenue collections were utilized in their underwritten net cash flow. Loan proceeds were sized to the actual note rate and were not limited by a stress constant or the Sponsor’s cost basis. Despite a run up in indexes during due diligence, our Capital Provider held the original rate of 4.58% through the 55 day application process.
December 12, 2018
George Smith Partners secured $9,300,000 for the ground-up development of a 32-unit multifamily building in the Koreatown neighborhood of Los Angeles. The 5-story project will include a mix of 1 and 2 bedroom units with gated subterranean parking. Sized to 80% of actual costs, the 36-month term carries two – 1-year options and is priced at 2.75% over LIBOR.
Our Sponsor requested maximum loan proceeds which would require the acceptance of imputed equity. George Smith Partners identified a Los Angeles based construction lender that understood the value that had been created with re-entitlements and permitting since the property was initially acquired four years ago. This capital provider agreed to value the land at current 2018 values as opposed to the acquisition price. The bank ordered appraisal valued the land at over 3x the Sponsor’s 2014 purchase price and imputed equity was utilized in calculating the Sponsor’s equity contribution. No additional funds were required at closing.
December 5, 2018
George Smith Partners placed the structured senior and collateralized Line of Credit revolver in a cash-out execution for a Hollywood multifamily rental. The two loans are both recorded deeds of trust with the senior loan fixed @ 4.75% for five years prior to rolling into a LIBOR based floater and self-liquidating over the remaining 25 year term. At $4,200,000 there was a small return of equity to the Borrower. A $2,800,000 Second Trust Deed is a true revolver that can be used as a check-book to tie up additional properties in a competitive acquisitions market. Funds may be drawn down, re-paid and re-drawn without additional bank approval. Priced at Prime, the revolver is interest only with interest accruing only on drawn funds. There is no non-utilization fee. As the Credit Line is collateralized, there is no mandatory “clean-up” for funds outstanding over 12 months.
Rate: 4.75% Fixed for Five Years; 6L+270 thereafter
Amortization: 30 due in 30 Years
Prepayment: 3-3-2-2-1 open
LTV: 60% Blended
Amortization: Interest Only
$4,200,000 Acquisition and Reposition Financing Including $1.4MM of Future-Funding on a Multifamily Property in Long Beach, California
November 21, 2018
George Smith Partners arranged a $4,200,000 first mortgage for the acquisition of a value-add multifamily asset located within one of Long Beach’s trendiest neighborhoods. The national balance sheet lender provided a non-recourse loan to 65% of total project cost which includes $1,400,000 to 100% of capital expenditures for property improvements. Interest on future proceeds is not incurred until funds are drawn. A short spread maintenance schedule provides maximum flexibility to allow the Borrower to quickly execute its value-add strategy, prior to taking out financing with permanent debt or a sale. Cash flow is maximized as the loan is interest only during the initial three-year term and priced at 3.55% 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 + 3.55%
Term: 36 months plus two 12-month extensions
Amortization: 36 months interest only
Loan to Cost: 65%
Prepayment: 12-month spread maintenance; open thereafter
Lender Fee: 1.00%
November 21, 2018
George Smith Partners placed a ten-year permanent loan for “The Fowler”; a recently constructed 159 unit mixed use multifamily development in Boise, ID. GSP placed the construction loan in Spring 2016 and the Borrower received its final Certificate of Occupancy in March 2018. The Property has become one of the most architecturally significant buildings constructed in downtown Boise. It includes live work units as well as 4,000 square foot of retail.
Our Sponsor obtained +95% physical occupancy in September and was looking to secure a perm loan before year end. Given the rapid lease-up and forecasted rate increases, GSP was commissioned to source the construction loan take-out that would allow for a partial return of equity upon stabilized occupancy but with limited stabilized operating history.
Boise was recently named the fastest growing city in the United States, and the capital markets embraced the Boise MSA’s market dynamics by offering multiple aggressive sizing and pricing structures. Our Sponsor selected an option that allows for a “second bite” for an additional recapitalization once cash flows are further documented and supported by stronger historical operating history. Priced at 153 basis points over the Ten-Year Treasury, the full-term interest only loan allows for future secondary financing.
$58,820,000 Non-Recourse Ground-Up Construction of 304-Unit Luxury Multifamily Property; Preferred Equity to 87% LTC
November 14, 2018
George Smith Partners placed a total of $58,820,000 in structured financing for the ground up development of a luxury 304-unit multifamily development. Proceeds were structured as a $41,070,000 senior construction loan and $17,750,000 of preferred equity. Together these two sources represent 87% of the cost of the project.
The non-recourse senior loan floats at a rate of LIBOR + 4.0%, while the preferred equity accrues at a market rate return. Payments on the preferred equity financing are completely deferred until a capital event occurs at project stabilization. The Preferred Equity Provider is receiving a fixed return on their investment and will not participate in any future upside. There are no repayment guarantees to either Capital Provider.
Since the market has few new multifamily properties with the projected rents, both Capital Providers required extensive market comparable data and a deep dive into the Sponsor’s experience. The business plan was proven out by the Sponsor’s recent successful development, stabilization, and sale of a 220-unit property in the same MSA but a separate sub-market. The Sponsor’s Development Team from the previous project remained intact for the subject property. Financing closed with enough time for the Sponsor to avoid incurring additional fees extending their land loan.
Rate: LIBOR + 4.0%
Origination Fee: 1%
Recourse: Completion Guarantee Only
Origination Fee: 1%
Recourse: Entity Only
October 31, 2018
George Smith Partners secured $7,125,000 in proceeds for the refinance of a 50-unit multifamily property located in Los Angeles. Fixed at 4.515% for a period of 5 years, the loan self-liquidates at 6 month LIBOR plus 2.25% for the remaining 25 year term; there is no balloon date. Two years of Interest Only payments precede loan amortization. Sized to a 1.15 Debt Coverage Ratio, proceeds were coverage constrained. Prepayment steps down from 3% with no penalty after the third year.
Although the Building was previously retrofitted, several capital providers required a new PML earthquake risk assessment study due to the masonry construction. As cap rates continue their compression, cash flows are often the limiting constraint for sizing loan proceeds. Industry standard DCR constraints are limited to 1.20x or 1.25x and often use an inflated rate over the actual indexed note rate.
The selected lender did not require any additional structural reports. Our underwriter allocated credit to our Sponsor for their success in fulfilling their business plan over the past two years; the balance sheet basis was not an underwriting factor. Net cash flow included the Property’s higher rental income as well as previously unreported RUBs income, parking income, and laundry revenue. A quoted competitive spread of 160 basis points over the 5 year swap rate demonstrated the Capital Provider’s belief in this location and sponsorship. Our 1.15 DCR constraint resulted in proceeds above the rest of the market.
Construction Loans Los Angeles | $6,000,000 Non-Recourse Predevelopment Financing for Construction of 170-Unit Multifamily Project in Tarzana, CA
October 24, 2018
George Smith Partners secured $6,000,000 in non-recourse predevelopment financing for a 170-unit ground-up multifamily project in the Tarzana community of Los Angeles, CA. The site is a collection of five contiguous lots, parceled together by the Sponsor to create an opportunity for larger scale development in the area. This financing facility allowed the Sponsor to recuperate some of the invested equity to be used towards continued advancement of the predevelopment for the Project, including but not limited to design and construction drawings, entitlement costs and permits. The Sponsor is currently building another ground-up multifamily project nearby and is an active local investor and developer, owning several retail and mixed-use assets in the area.
GSP sourced a lender who offered a fixed-rate financing facility to lessen the burden of development costs on the Project, recapturing nearly 65% of invested dollars for a bridge through the pre-development phase; it will ultimately be taken out by the construction loan when the Project breaks ground. The identified capital group was already familiar with the site, and was able to offer a flexible and low-cost structure without a prepayment penalty. The application was an expeditious process; GSP was able to facilitate a closing less than three weeks from the date the term sheet was signed. The twelve month fixed rate note was priced at 6.90%, and was sized to 64.5% of cost basis.
October 17, 2018
George Smith Partners successfully arranged the refinance of a 14 building, 120-unit multifamily asset located in the Arden-Arcade neighborhood of Sacramento, CA. GSP worked with a life company with a strong appetite for multifamily lending and ultimately structured a loan in which the Sponsor pulled out $10,000,000 of cash. The non-recourse loan has a fixed rate of 4.24% and refinanced an existing agency loan. Some of the unique features of this loan included: rate lock at application, assumption rights in the event of a sale and future loan advances/top-offs upon increase in NOI.
$13,130,000 Acquisition and Reposition Financing with Low 3% Going-In Debt Yield on Two Multifamily Properties in the San Fernando Valley, California
October 17, 2018
GSP arranged the $13,130,000 first mortgage on two 1960’s vintage multifamily assets in the San Fernando Valley. The National Balance Sheet Lender provided a non-recourse loan at 75% of total project cost including 100% of future CapEx funds to complete an extensive interior and exterior renovation of $45,500 per unit. Interest expense is not incurred on CapEx funds until drawn. The 30-Day LIBOR plus 3.20% coupon requires interest rate risk protection throughout the term, and in order to minimize associated sponsor cost the Lender structured the initial term as two years, with three, one-year extensions and no hurdles or fees for the first extension. Due to low going-in cash flow, the Lender structured an interest reserve to cover debt service during the peak reposition period.