Rate: 4.02% Fixed
Term: 120 months
Amortization: Interest Only
Prepayment Penalty: Yield Maintenance
George Smith Partners arranged the refinance of Medici and Orsini I, two multifamily properties totaling 1,359 units located in Downtown Los Angeles. GSP advised the Sponsor to refinance the existing loans which were at 5.5% and 5.1%, respectively, with less than two years remaining, to take advantage of low interest rates in a rising rate environment. Upon analyses of interest rate savings over a 10-year term, GSP determined that the new interest rate payments would offset the early prepayment costs. In addition to securing long-term, fixed rate 10-year loans, the refinancing generated significant net cash proceeds from the appreciated equity of the two properties. Sized to 60% of value, the interest only, non-recourse loans are fixed at 4.02%.
Multifamily Townhome Project Refinancing: $157,500,000 Cash-Out Refinance of a 752-Unit Multifamily Property; 10-Years Interest Only at 4.29%
June 20, 2018
George Smith Partners arranged the refinance of Colony Townhomes, a 752-unit multifamily property located in Canyon County, California. The refinance proceeds replaced a HUD loan, also previously arranged by GSP, with a remaining term of 23 years and with pre-payment penalties. Sized to 65% of value, the non-recourse, 10-year, interest only loan is fixed at 4.29%.
The Sponsor wanted to seize the opportunity to cash out significant appreciated equity, while locking in low interest rates in a rising interest rate environment. The early refinance meant that the Sponsor would have to incur the pre-payment penalty. The recent fluctuations in the 10-year Treasury spurred additional urgency in the transaction.
The Sponsor’s original HUD loan was priced at 3.75% with over 20 years remaining. Through analysis, GSP determined that the interest rate savings for a new 10-year loan would easily offset the early prepayment costs of the existing loan, as well as provide for the major cash out the Sponsor was hoping to achieve. Once the Sponsor decided to proceed, Rate Lock was accomplished in 14 business days and the loan closed 21 days later.
While an early refinance does not make sense in every situation, frequently, the opportunity to liberate trapped equity as well as lock in long term fixed rates ahead of expected further rate increases offsets the prepayment penalty cost incurred by refinancing prior to the open prepayment window.