$33,000,000 Nine-Building/Nine-Loan Multifamily Apartment Portfolio Cash-Out Refinance

Rate: 3.15% Fixed for 5 years
Term: 30 Years
Amortization: 30 Years
LTV: 75%
DCR: 1.20
Prepayment Penalty: 3,2,1, open
Lender Fee: Par

Transaction Description:
George Smith Partners placed $33,000,000 in permanent financing for a nine-property multifamily apartment portfolio in Los Angeles for a local owner/developer. The portfolio was split between two capital providers into nine separate uncrossed loans that closed concurrently. Sized to 75% of appraised value and a 1.20 DCR, the loans all self-liquidate over 30 years. Fixed for five years at 3.15%, rates will reset and float at 235 over LIBOR for the remaining 25 year term. A step-down prepayment is underwritten and opens without penalty after the third year.

With unrelated open acquisition escrows pending, our Sponsor required an aggressive portfolio capital provider who would maximize a return on equity while demonstrating the ability to close quickly and as applied for. Market interest rate volatility added concerns as loan proceeds were limited by cash flow.

George Smith Partners sourced two unrelated portfolio lenders that underwrote for a net $5,000,000 in return of equity. Post BREXIT vote, GSP advised the Sponsor to early rate lock to mitigate market risk exposure from additional volatility. Our capital providers funded all nine transactions within Sponsor’s requested time frame at an historically low coupon. (Rates bumped up one week after locking, but prior to loans funding).


Related Financings

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    $33,700,000 Cross Collateralized Refinance of Two Multifamily Properties in Southern California

    June 27, 2017

    Transaction Description

    George Smith Partners secured a $33,700,000 refinancing loan for two multifamily properties in Southern California. The 10 year loan with 5 years interest only, priced at 10 Year Swaps + 2.30 (4.41% coupon), replaced expensive high leveraged bridge debt. The loan was cross collateralized with both properties, which totaled 397 units. The two very different properties consisted of a 97 unit trophy asset overlooking the ocean and a less well located 300 unit property with a higher cap rate.


    For the 97 unit trophy asset, the sponsor’s proceeds requirement to refinance the preceding high leveraged bridge debt could not be met by a conventional lender, including agency lenders. This was because the property’s extremely low cap rate and debt yield constrained the potential loan size, therefore hindering the property’s ability to refinance its current debt.


    GSP understood the diverse property dynamics of each asset and developed the strategy of cross collateralizing the two assets. GSP recognized the upside in presenting the properties as a “package deal”, particularly as it related to solving the debt yield challenge. By crossing the two properties, GSP synthetically created a debt yield in the sweet spot of most lenders. At the same time, lenders became more comfortable with the less well located building because it was being bundled with a trophy asset with an irreplaceable location. Additionally, GSP knew by bundling the properties together and creating a larger transaction that lenders would be prone to increase proceeds and decrease pricing, as compared to two separate smaller transactions. GSP ultimately was able to identify and place incredibly aggressive bond financing, which was appealing because of its leverage, proceeds, and 5 years of interest only.

    Rate: 10 Year Swaps + 2.30% (4.41% Coupon)
    Term: 10 Years
    Amortization: 5 Year Interest Only – 30-Year Amortization Thereafter
    LTV: 70%
    Guaranty: Non-Recourse
    Prepayment Penalty: Defeasance

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    $16,250,000 Ground-Up Construction Loan Fixed for Seven Years at 4.0%

    June 14, 2017

    George Smith Partners facilitated the seven-year fixed-rate construction loan for the ground-up development of 60 Los Angeles “For Rent” housing units.  As part of this capitalization, GSP placed the land acquisition debt in 2015.  Sized to 75% of actual development costs, this institutional capital provider will fund all draw requests at the 4.0% rate that was locked at application.  Interest is paid as drawn; there is no negative arbitrage.  The ten-year term negates the need to process a mini-perm upon Certificate of Occupancy and removes future interest rate risk.  The recourse loan is fixed for seven years at 4.0% and floats at 275 over LIBOR for the remainder of the ten-year term.  Prepayment steps down; 2,2,1,1 open.

    Rate: 4.0% fixed
    Term: Ten Years Fixed for Seven Years
    Amortization: IO During Construction; 27.5 Years thereafter
    Loan to Cost: 75%
    Prepayment: 2,2,1,1
    Loan Fee: 1.0%
    Guaranty: Recourse

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    $5,625,000 Acquisition Loan for Trophy Multifamily Asset in Malibu

    April 12, 2017

    Transaction Description
    George Smith Partners secured $5,625,000 in proceeds for the purchase of a 9,585 square foot, 12-unit multifamily property located in Malibu, CA. The loan is fixed at a rate of 3.95% for 5 years, then floats thereafter at 12 month LIBOR plus 2.5% for 10 years. The loan represented  $468,750 per unit.

    First, the buyer was purchasing the property at a very high price per unit. Second, the property had been fully renovated by the seller and only had six months of operating history. At the time of application, one unit was vacant and four units had short-term leases, including two units leased to corporate tenants. The seller was receiving rents that averaged over $6.00 per square foot which is common in Malibu, but much higher than most locations in Los Angeles. Finally, the property was located on the inland side of the Pacific Coast Highway and had a steep slope at the front of the property, which caused some lenders to be concerned with earthquake risk.

    GSP was able to source a lender that was comfortable with all of the unique aspects of the deal. Although the selected lender had an LTV maximum of 50%, proceeds were considerably higher than other lenders which were constrained by a cap on loan per unit. Also, GSP was able to source rent comp data that showed the in-place rents were well supported. Thus, the lender was willing to provide a term sheet even with the vacant unit and short-term leases in place. Additionally, a previous owner had performed an extensive seismic retrofit on the property, which eliminated the need for earthquake insurance. Once in application, the loan closed in approximately 30 days.

    Term: 15 years
    Rate: Fixed for 5 years at 3.94%, followed by floating at 12 month LIBOR plus 2.5%
    Amortization: 30 years
    Prepayment Penalty: 3,2,1
    LTV: 50% maximum
    DCR: 1.20
    Origination Fee: Par
    Guaranty: Recourse

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    $13,000,000 Los Angeles Ground-Up 59 Unit Multifamily Construction w/ Take-Out Fixed @ 3.20% at Commitment

    March 22, 2017

    Transaction Description

    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.


    Rate: 5 Years Fixed @ 3.20%; then LIBOR+2.50%:
    Term: 120 Months (Construction & Perm)
    Lender Fee: 1%
    LTC: 63.0%
    Prepayment Penalty: 2,2,1,1,open
    Recourse: Burning down to 50% at C of O and zero after the 2nd year

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    $1,075,000 Multifamily Cash-Out Refinance with Significant Return of Equity at a 3.70% Fixed Rate for 5 Years

    March 15, 2017

    Transaction Description:

    George Smith Partners arranged a $1,075,000 cash-out refinance, including a 65% return of equity, at a 3.70% fixed rate on a multifamily property located in West Hollywood, CA.  The sponsor, a Los Angeles based owner-operator, purchased the property less than two years ago and turned approximately half the units in the intervening period.  Despite the limited ownership and lease seasoning, the Sponsor sought maximum cash-out proceeds to capitalize on the value unlocked through unit turns and to make new acquisitions.  The sponsor also sought a fixed rate permanent loan to hedge against rising interest rates and a flexible prepayment structure to allow for a subsequent near-term refinance or sale, as additional value is unlocked through unit turns.  GSP sourced a lender familiar with the market and underscored the submarket, the property’s additional upside and sponsor’s track record, which ultimately allowed the lender to get comfortable with the large return of equity.  Sized to 65% of appraised value with a 1.20 DCR, the loan provided for a net return of equity of $425,000 to the sponsor.  The loan, which carries a 15 year term and amortizes over 30 years, is fixed at 3.7% for the first 5 years of the term and then resets and floats at 300 basis points over 1-Year Treasuries for the remaining 10 year term.  Sponsor’s application rate lock of 3.7% shortly after the election last year was honored by the lender, even though rates have moved significantly in the interim.  Although the loan provides the benefit of a fixed rate, it carries no prepayment penalty.

    Rate: 3.7% fixed for 5 years
    Term: 15 Years
    Amortization: 30 Years
    LTV: 65%
    DCR: 1.20
    Prepayment Penalty: None

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    $9,550,000 Cash-out Refinance Loan of 53-Unit Multifamily @ 3.85%

    February 8, 2017

    Transaction Description:
    George Smith Partners secured $9,550,000 in proceeds for the cash-out refinance of a 53 unit apartment building located in Los Angeles. The loan is fixed at a rate of 3.85% for a period of 7 years, then floats at 12 MAT + 2.75% with a floor of 3.85%. The 30-year loan offers 3 years of interest only payments followed by a 27-year amortization schedule. A challenge occurred when it was discovered that the property is located in a special study zone on the Hollywood Fault Line. As a result, some lenders declined the deal entirely, while others required a PML report and earthquake insurance depending on the result. GSP was able to source a lender that did not require a PML or other third party reports, which saved the borrowers a great deal of time and expense. The loan also went into application in mid-November at a time when most lenders’ rates had already jumped by 25 basis points or more. The lender accommodated the borrower by holding the rate long enough to allow the borrower to quickly lock in an extremely competitive rate.

    Term: 30 years
    Rate: Fixed for 7 Years at 3.85%, followed by floating at 12 MAT + 2.75%
    Amortization: 3 Years Interest Only, followed by 27 Year amortization
    Prepayment Penalty: 2.5%, 2.5%, 2.5%, 2.5%, 2.5%, 1%, 1%
    LTV: 65%
    DCR: 1.15
    Origination Fees: Par