$26,400,000 Acquisition and Reposition Financing with Low 3.5% Going-In Debt Yield on Two San Fernando Valley Multifamily Properties

Rate: 30-Day LIBOR + 3.80%
Term: Three years plus two 12-month extensions
Amortization: 36 months, Interest Only
LTC: 70%
Prepayment: 15-month lockout; open thereafter subject to 0.25% waivable exit fee
Guarantee: Non-recourse
Lender Fee: 1.00%

GSP arranged the $26,400,000 first mortgage on two 1970’s vintage multifamily assets in Glendale, California. The national balance sheet lender provided a non-recourse loan at 70% of total project cost including 100% of future CapEx funds to complete an extensive interior and exterior renovation. Interest expense is not incurred on CapEx funds until drawn, and sponsor cash flow is maximized as the loan is interest only during the initial three-year term. The 30-Day LIBOR plus 3.80% coupon requires interest rate risk protection. In order to minimize associated sponsor cost the lender structured the interest rate cap with a two-year duration at closing plus an obligation to renew for the third year of the initial term. Due to low going in cash flow, the lender structured an interest reserve to cover debt service during the peak reposition period. The assets are cross-collateralized with the ability to release individual properties subject to debt yield and loan to value hurdles.


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    $3,900,000 Acquisition Bridge Loan at Prime + 1.25% for Five Years, Non-Recourse

    May 30, 2018

    Transaction Description:
    George Smith Partners secured $3,900,000 to facilitate a value add acquisition of a 28-unit multifamily building in Silver Lake. Constructed in the 1950s, this building is located near the heart of Silver Lake which houses many trendy coffee shops, restaurants, bars, and entertainment. Floating at Prime + 1.25% for five years with a 5.50% floor rate, this non-recourse loan has 12 months of interest only payments followed by a 30-year amortization. The loan has a prepayment penalty of 2% for the first two years, then open.

    The subject property has many long term residents. The long term residency left the property with dozens of units at below-market rents, ultimately affecting loan proceeds. The property required a significant amount of capital improvements in order to deliver the type of product and aesthetic that the younger tenant base in the immediate area expects for newly renovated units.

    GSP worked with a Lender who understood the client’s successful track record renovating and adding value to similar projects in the area. The Lender had comfort in the business plan for this project and was able to underwrite to a 1.20x DCR on the exit using proforma rents. The $30M loan provided 65% of the acquisition cost. The Lender was also able to offer non-recourse for this bridge loan.

    Rate: Prime + 1.25% for 5 years; 5.50% Floor Rate
    Term: 5 years
    Amortization: Interest Only 12 months, then 30 YR AM thereafter
    Prepayment Penalty: 2,2,0%
    LTV: 65%
    DCR: 1.20
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    Origination Fees: 0.50%

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    $6,129,000 84.3% of Acquisition for a To-Be-Vacated Seattle Multifamily – Closed in Two Weeks

    April 18, 2018

    George Smith Partners placed 84.3% of purchase for the acquisition of a 23-unit Seattle multifamily built in 1915. This is inclusive of a 100% bank funded interest reserve. A six-month escrow allowed the seller to vacate units at lease-roll, netting a 48% occupancy at close. Our Sponsor, a foreign national, will vacate the remaining units while processing permits and execute a major rehabilitation of the property, including the addition of new rentable square footage. This rehab will be funded by a future construction loan and not this acquisition loan. To optimize pricing, two loans were structured in an A/B format where the A piece was funded by a regional bank and allowed the B piece to record a second Deed of Trust. The blended cost of capital calculates to 7.76% fixed for the initial 12-month term. Debt service is paid from a fully bank funded reserve account. A limited repayment guarantee was required from the Borrower. Closing executed two weeks from posting the application deposit, inclusive of a bank-ordered MAI appraisal and property condition inspection.

    Rate: 7.76% Fixed – Blended
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    $17,910,000 Non-Recourse Multifamily Acquisition and Renovation Financing

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    George Smith Partners arranged $17,910,000 of non-recourse, acquisition bridge financing for the purchase and renovation of a 206-unit multifamily property located in the Southwest. The property, which was built in 1979, is comprised of 17 garden-style buildings with studio, 1 and 2-bedroom units. Although 97% occupied, the property suffered from lower than market rents due to both exterior and interior deferred maintenance. The Sponsor intends to capture higher rents by investing $1,800,000 to upgrade individual apartments and the property’s communal facilities. The lender was able to get comfortable with the capital expenditure budget and the projected rents due to the Sponsor’s proven track record in the submarket. Sized to 69% of total cost, the non-recourse bridge loan floats at 4.20% over 1-Month LIBOR for 3 years.

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    Term: 36 months
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    $7,100,000 Acquisition Bridge Loan for Near-Vacant Los Angeles Multifamily Property; 70% of Cost

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    Transaction Description:
    GSP secured $7,100,000 for the purchase of a near-vacant, 30-unit multifamily property in Los Angeles. The loan is structured with an initial funding of $5,970,000 with additional holdbacks of $1,130,000 in reserves. The loan floats at Prime + 0.25% with a floor of 4.75% and has two years of interest only payments. The purchaser is planning an eighteen-month renovation of the property that includes the addition of eight new units.

    At the time the purchase and sale agreement was signed the property had only two units rented. Although the sponsor had extensive experience with ground-up construction of warehouse space, they had only completed one renovation of a multifamily property. The sponsor’s proforma rents were at a premium to un-renovated units in the submarket causing some lenders to stress their underwritten rents. The property was also mistakenly flagged under the LA Soft Story Retrofit ordinance even though the City had already issued a Certificate of Compliance.

    GSP was able to source a lender comfortable with the limited cash flow during the renovation period by emphasizing the strength of the submarket and the enormous value-add potential of the property. Rental comps for newly renovated units in the area were provided along with the borrower’s very large per-unit renovation budget. This data showed that the borrower’s rent projections are well supported by the market. A detailed budget and architectural plans were effective at securing comfort with the borrower’s capability to meet the business plan. GSP called the City and they provided the Certificate of Compliance, which led to the removal from the Soft Story list. The acquisition loan closed in 40 days from application.

    Rate: Floating at Prime + 0.25% with a floor of 4.75%
    Term: 5 years
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    LTC: 70% of as-completed value
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    $24,500,000 Non-Recourse Multifamily Acquisition and Renovation Financing

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    George Smith Partners arranged $24,500,000 of non-recourse, acquisition bridge financing for the purchase and renovation of a 301-unit multifamily property located in the Southwest. The property, which was built in 1971, is comprised of 25 garden-style buildings with mostly 1 and 2-bedroom units. Prior management had done a subpar job in terms of maintenance which required the new buyer to execute a sizeable renovation plan in order to upgrade the units properly: including new cooling towers, infrastructure plumbing and heavy unit renovation. The lender was able to get comfortable with a large capital expenditure budget due to the experience of the new operator and their proven track record in the market and submarket. Sized to 81.5% of total cost, the non-recourse bridge loan floats at 5.25% over 1-Month LIBOR for 3 years.

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    Acquisition Bridge Loan for a 7 Unit Multifamily Property in Inglewood, CA; 70% Loan to Cost at a 5% Rate

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    Rate: Prime + 0.5%
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