Rate: 3.54% Fixed
Term: 84 months
Amortization: Interest Only
Prepayment Penalty: Yield Maintenance
George Smith Partners successfully placed the refinance of a Los Angeles portfolio consisting of four multifamily properties with 1,359 units. The Sponsor locked-in current interest rates and chose to defease the existing loans to secure the rate and harvest appreciated equity. With energy and water efficiency retrofits, the Sponsor is projected to save 35% in energy and 28% in water costs, per year. As part of a green energy savings program, the Lender gave 18 bps in rate reduction that allowed for a 5% increase in loan proceeds. Sized to 65% of value, the non-recourse loans are fixed for 7 years at 3.54% with interest-only payments.
Assistant Vice President
September 26, 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.
$80,228,000 Cash-Out, Fixed-Rate Refinance of a 297-Unit Multifamily Property; 10-Years Interest Only at 4.20%
September 19, 2018
George Smith Partners successfully placed a 10-Year, Cash-Out, Fixed-Rate refinance of a 297-unit multifamily property located in Downtown Los Angeles, California. This loan refinanced a 10-Year floating rate loan with a remaining term of 8 years, also arranged by GSP.
Two years ago the Sponsor decided on a variable rate loan and paid an early prepayment penalty on his prior loan, allowing for a significant cash-out and reduction in interest carry. Our client benefited from lower interest rates for the past two years, however, as the long-term interest rates began to increase they decided to switch to a long-term fixed-rate strategy.
There were two objectives for this transaction: 1) leverage appreciated equity, and 2) replace floating rate risk with a long-term fixed-rate. Recent fluctuations in the 10-year Treasury prompted additional urgency in the transaction and GSP moved quickly to arrange the new loan as soon as the former loan’s two-year lockout period expired. Sized at 55% of value, the non-recourse, interest-only loan is fixed at 4.20% for 10 years.
August 15, 2018
George Smith Partners secured $7,000,000 for the cash out refinance of three stabilized multifamily buildings in West Hollywood containing a total of 53 units. Constructed in the late 1930s and late 1940s these buildings are situated on one of the most sought after streets in West Hollywood and in close proximity to popular restaurants, bars and entertainment. Fixed at 4.55% for seven years, the non-recourse loan floats at 6 month LIBOR + 2.25% for the remaining 23-year term. The non-recourse loans are fully amortizing and have a 5,4,3,2,1 step down prepayment penalty.
Many of the buildings have long term residents who have lived at the properties for over a decade. The long term residency leaves the owner with dozens of units with uncaptured market rents, ultimately affecting the amount of loan proceeds.
GSP worked with a lender who understood the strength of these assets and was able to underwrite to a 1.15x DCR at the actual note rate. Our Capital Provider was comfortable with the future upside of the properties as the Sponsor has plans to raise units to market rent as tenants vacate.
$9,096,000 Fixed Rate Bridge Refinance on 1920’s Downtown Los Angeles Brick-Built Multifamily Property
August 15, 2018
GSP arranged the $9,096,000, 80% loan to value first mortgage on a 1920’s vintage multifamily asset in Downtown Los Angeles. The Property was previously burdened by unforeseen operational challenges which prevented the Sponsor from maximizing Property cash flow and limited eligibility for competitive financing terms. GSP identified a regional balance sheet lender to provide a five-year loan that includes funding for capital expenditures to complete the Sponsor’s renovation plan. The loan has a fixed coupon to eliminate interest rate risk during the term and includes two years of Interest Only payments to maximize cash flow during the renovation. The loan includes an interest reserve to cover debt service during the peak reposition period, and the recourse obligation burns off upon the Property’s achievement of predetermined debt service coverage hurdles.
Term: Five Years
Amortization: 24-months interest only, 40-year amortization thereafter
Loan to Value: 80%
Prepayment: 2%, 1%, open
Guarantee: Partial Recourse (burns off once Property achieves debt coverage hurdles)
Lender Fee: 1.00%
August 1, 2018
George Smith Partners secured $9,150,000 for the non-recourse cash-out refinance of a newly built 25-unit multifamily building located in Los Angeles. The building is situated in one of the most sought after areas in Los Angeles and is in close proximity to popular restaurants, bars and entertainment in nearby Culver City. The construction take-out permanent loan is fixed at 5.04% for ten years with full term interest-only and has a yield maintenance prepayment penalty structure.
The building was in lease up when the financing process started. Thus, the owner did not have any seasoning on the newly leased units nor any historical operating expenses.
GSP identified a capital source who was willing to provide proceeds at over 90% of cost and understood the strength of the asset in addition to the experience of the Developer. Based on these strengths, the Lender was able to underwrite to in-place income without seasoning, proforma operating expenses, and a 7.35% debt yield, which maximized loan proceeds. The Lender was able to fund once the property achieved 80% physical occupancy. The Sponsor locked a full term interest-only structure, which is advantageous to the property’s cash flow as the new leases continue to season.
Rate: 5.04% Fixed for 10 years
Term: 10 years
Amortization: Interest Only
Prepayment Penalty: Yield Maintenance
DCR: 1.35x on an IO basis
Origination Fees: Par
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.