Rate: 5 Years Fixed @ 3.20%; then LIBOR+2.50%:
Term: 120 Months (Construction & Perm)
Lender Fee: 1%
Prepayment Penalty: 2,2,1,1,open
Recourse: Burning down to 50% at C of O and zero after the 2nd year
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.
Senior Vice President
June 22, 2016
Transaction Description: George Smith Partners successfully structured and placed the ground-up construction financing for a Class-A, 24-unit market rate apartment complex adjacent to a prestigious Southern California University. Designed to fulfill demand for non-student, Class-A residential product, the development is a loft-style design consisting entirely of 2 bedroom/2 bathroom units. The 65% of cost loan is priced at PRIME + 1.00% with the seven year term structured as a two year construction period converting to a five year mini-perm fixed at 4.75%. Pre-payable at any time, this loan provides full flexibility to the Sponsor while protecting against maturity default. Top 25% initial recourse becomes non-recourse upon achieving a minimum debt service coverage ratio.
Challenge: Although the surrounding residential market is extremely strong, the majority of adjacent product is student housing with a very limited amount of comparable market rate product. There is negligible sales velocity to provide new product comparables and the lender/appraiser was required to look outside the immediate market area to support values.
Solution: George Smith Partners identified a lender active in the greater market area and comfortable with the location and underwritten assumptions. Significant market research was conducted to support demand for market rate apartments and achievable market rents. The demographic study and asset design ultimately supported initial underwritten assumptions. The Sponsor’s market and product experience provided our capital provider with additional comfort.
April 23, 2015
Transaction Description: Gary E. Mozer, Katie H. Rodd, Michael Anderson and Kyle Howerton arranged $38,500,000 in 10 year on-book non-recourse acquisition financing from a national life insurance company on a 164-unit Class A multifamily property in Ventura County, Southern California. The subject is part of a masterplanned community with a complicated HOA structure. The newly constructed property was built in two phases and was in lease-up during the closing process. Sized to 70% of acquisition, the loan is priced at 185 basis points over the 10-year Treasury and locked at 3.90% at application execution, eliminating interest rate fluctuation during the closing process even though the property had not yet reached stabilized occupancy. Five years of Interest Only payments maximizes the Sponsor’s cash flow during the initial hold period but still provides the lender with acceptable balloon balance at the end of the term.