Rate: Prime + 0.50%; 4.25% Floor
LTV: 65% of Purchase Price
Term: 5 Years
Amortization: 2 Years Interest Only Followed by 30 Year Amortization
Prepayment Penalty: None
George Smith Partners secured $7,150,000 for the purchase of a 29-unit multifamily property in Pasadena, California. Sized to 65% of purchase, the 5-year loan was priced at a floating rate of Prime plus 0.50%, with a floor rate of 4.25%. The loan has 2 years of interest only payments with a 30-year amortization schedule following thereafter. GSP closed the loan less than 30 days after the application was filed.
The Sponsor acquired the property as part of a 1031 exchange and had 40 days to meet the exchange window. Despite the short timeline, the borrower wanted to secure bank pricing and was reluctant to consider non-bank lenders. In addition, the property was operating with units at below-market rents, despite the building’s location in a non-rent controlled area. Thus, in-place cash flow was not enough sufficient to satisfy traditional underwriting criteria for many potential bank lenders.
GSP sourced a bank that provided proceeds of 65% of purchase price. The selected lender was known to have certainty of execution and a quick close process. Our team was able to provide both rent and sales comps showing the huge amount of income upside in the property and demonstrating how the seller had not efficiently captured the value of the asset. The lender was able to overcome the low going-in DCR by requiring a payment reserve of $400,000, which will be released once the property’s DCR reaches 1.25. GSP also emphasized the sponsor’s recent success in increasing income and NOI at another multifamily property in a nearby market. By creating a sense of urgency among all parties, GSP was able to complete the transaction within the buyer’s short timeframe and close the deal just a few days before the expiration of the 1031 exchange.
April 12, 2017
George Smith Partners arranged a $1,253,000 bridge loan for the acquisition of an 8-unit, value-add multifamily property in Long Beach, California. Sized to 70% of total project cost, the loan includes 100% of future funding for property renovation, which includes a full gut renovation of unit interiors and an exterior upgrade. The two year bridge loan is interest only and floats at Prime plus 0.5% with no prepayment penalty. Interest is not charged on the hold back until funds are drawn and the lender fee was 0.5%. The property is located in an area of Long Beach that is within a growth corridor, but has yet to gentrify. The sponsor’s plan includes noticing all below market leases in a fairly short window. By emphasizing the sponsor’s track record of re-positioning similar properties as well as current market rents and occupancy, GSP was able to assist the lender in gaining comfort with the market. The loan was structured with an interest reserve to mitigate the property’s weak cash flow during the renovation period. The loan closed in 45 days from start of application.
$19,500,000 Acquisition and Reposition Financing with Low 5.00% Going-In Debt Yield on a Multifamily Property in Seattle, Washington
March 28, 2017
George Smith Partners arranged a $19,500,000 first mortgage on the acquisition of a value-add multifamily asset located within one of Seattle’s trendiest neighborhoods. The national balance sheet lender provided a non-recourse loan to 70% of total project cost including 100% of future capital expenditure funds to refresh the property’s exterior, interiors including living and common area spaces, and convert 13 furnished extended stay style “executive suites” to market-rate apartments. Interest expense is not incurred on future funding until drawn. Cash flow is maximized as the loan is interest only during the initial three-year term and priced at 4.50% over 30-Day LIBOR. Due to low going-in cash flow, the lender structured an interest reserve to cover debt service during the reposition period.
Rate: 30-Day LIBOR + 4.50%
Term: 36 months plus two 12-month extensions
Amortization: 36 months interest only; 30-year amortization thereafter
Loan to Cost: 70%
Prepayment: 18-month lockout; open thereafter subject to 0.50% exit fee
Lender Fee: 1.00%
December 7, 2016
George Smith Partners secured the $1,820,000 acquisition bridge loan to purchase a 15-unit multifamily property in Los Angeles. Proceeds were constrained by a below market, in-place income. GSP sourced a Capital Provider who provided full proceeds and pricing that resulted in a below break-even going-in DCR of 0.8x. Lender required a 6-month interest reserve until property reached a DCR of 1.25. Sized to 70% of cost, the floating rate loan was priced at Prime +0.5%, adjusting daily for 2 years and is interest only for 2 years with no prepayment penalty.
August 3, 2016
George Smith Partners successfully structured the 70% loan-to-cost non-recourse acquisition bridge financing on a significantly under-managed 2000 vintage mid-rise multifamily property in Dallas, Texas. The under-managed property was trailing market rents by 20% at acquisition resulting in a debt yield below 6% on in-place income. The Sponsor’s business plan is to recapture the loss to lease, implement a capital improvement plan including washer/dryer installation to enhance unit interiors, and upgrade the lobby, common areas, amenities and exterior to meet the market’s discerning taste. Floating at 375 over LIBOR, this non-recourse loan is Interest-Only for five years (including options) and was sized to 70% of total cost. A portion of the loan proceeds will be used to finance the interior and exterior upgrades, with interest not paid until funds are drawn.