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
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.
May 9, 2018
George Smith Partners secured $18,000,000 for the cash-out refinance of two stabilized multifamily buildings in Los Angeles containing a total of 116 units. Constructed in the 1960s these buildings are situated in one of the most sought after areas in Los Angeles and in close proximity to popular restaurants, bars and entertainment. Fixed at 4.47% for seven years, the non-recourse loans float at 6 month LIBOR + 2.25% for the remaining 23-year term. The non-recourse loans are fully amortizing and have a 5,5,4,3,2,1 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 1.15 x DCR at the actual note rate in order to maximize loan proceeds. Both properties also had a handful of recent move ins, which gave the Lender comfort in the future upside of the properties as units continue to turn.
May 2, 2018
George Smith Partners secured a $10,066,000 non-recourse cash-out refinance loan for a 71-unit multifamily property in Los Angeles. Although the rental units at the property were fully occupied, the Sponsors were still in the process of implementing RUBS (Ratio Utility Billing System) and establishing storage income. Additionally, some tenants had rent increases that were scheduled to kick in during loan application. GSP sourced a lender that gave the borrower credit for all of the additional income based on signed leases, rather than requiring seasoning. This higher underwritten income resulted in proceeds that were much greater than those offered by the rest of the market. The lender also offered a 60-day rate lock during a time of rapidly rising interest rates.
During due diligence, several challenges were encountered that delayed the closing of the loan. The existing lender required a lengthy notice period in order to process the payoff which further delayed closing until after expiration of the 60-day rate lock. The new lender generously extended the rate lock for two additional weeks and held the rate in the original application.
$233,600,000 Cash Out Refinance of a 1,359 Unit Downtown Los Angeles Multifamily Portfolio; 10-Years Interest Only at 4.02%
February 7, 2018
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%.
January 3, 2018
George Smith Partners secured $35,470,000 for the cash out refinance of a stabilized multifamily portfolio containing 187 units in West Hollywood. Fixed at 3.70% & 3.90% for seven years, the 30 year fully amortizing non-recourse loans float at 6 month LIBOR + 2.25% for the remaining 23-year term 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 coupled with stringent West Hollywood rent control constraints leaves the owner with uncaptured market rents, which ultimately affects the amount of loan proceeds.
GSP sourced a lender who understood the strength of these assets and was able to underwrite to a 1.15x DCR at the actual note rate. The capital provider was amenable to increasing loan proceeds after rate lock and with a handful of recent move-ins, they became comfortable in the future upside of the portfolio as units continue to turn.
November 8, 2017
George Smith Partners arranged $9,170,000 refinancing for a portfolio of four multifamily properties in Los Angeles. GSP identified a lender who was comfortable providing a $2,500,000 return of equity to the Sponsor, while executing a strategy for a portfolio refinance that allowed the capital provider to become more aggressive with both rate and proceeds. GSP was able to time the market and lock rate at the ideal moment, achieving the best possible pricing for our Sponsor. This recourse loan represents 75% of the portfolio’s value and has a 30-year term with the first 5 years fixed at 3.85% and resets every 5 years. This loan self-liquidates over the course of the 30-year term.