$7,850,000, 40 Unit Ground-Up Apartment Construction Loan, Los Angeles, California

9 – 27 – 12
Transaction Description: GSP arranged the financing for a 40 unit ground-up apartment development in Hollywood, California. The developer had assembled the land over a period of years, and originally intended to develop a “For-Sale” building. Because of the strong demand in the Hollywood market, coupled with a comparatively low basis in the land, the Borrower was able to attract private, passive JV equity to co-invest in the transactions.
Challenge: The Borrower’s previous construction projects were financed by a bank that had stopped lending on construction following the credit crises. While the previous projects were successes, the Borrower struggled to attract debt without a clear pipeline of future projects and the personal capital to build out all of the proposed developments. The Borrower’s private equity sources were reluctant to sign full personal repayment guarantees.
Solution: GSP worked with the Borrower to demonstrate a clear pipeline of projects based on existing assets and future business plans. The Borrower was able to secure capital partners through his private network. The new investors agreed to sign on the current loan but only in a secondary position after all other remedies for cure have been solved. This bolstered financial strength of the request, combined with a clear pipeline of future business gave the lender sufficient confidence to proceed with the loan. To shield the private investors, GSP negotiated a several pro-rata recourse agreement for the investors to a capped amount, which is significantly less than the loan amount. This gave the investor partners comfort that they are not exposed to the full repayment guarantee.
Rate: LIBOR+275
Term: 3 Years + 24 Month Extension
Amort: 30 Years
LTC: 65%
Recourse
Brokers: Jonathan Lee, Shine Cheng

Related Financings

  • Expand

    $9,520,000 Ground-Up Condominium Construction Financing to 80% Cost

    November 30, 2016

    Transaction Description:

    George Smith Partners structured senior construction debt for 22 luxury condominium units in the Pico/Robertson area of Los Angeles, two miles south of Beverly Hills. Our Sponsor has extensive experience with residential construction in Los Angeles, but recent trends in the construction lending market have placed downward pressure on Loan-To-Cost constraints. “For Sale” product has been especially impacted by revised underwriting criteria. Supportive market data and product demand verified the value of this project. Our healthy Sponsor armed with a pipeline of future transactions allowed us to secure 80% of actual cost financing at an institutional interest rate.  Priced at LIBOR + 3.15%, the two year term is supported by a personal repayment guarantee.

    Rate: LIBOR + 3.15%
    Term: 24 Months
    Lender Fee: 0.60%
    LTC: 80%
    Recourse

  • Expand

    $10,700,000 Los Angeles Multifamily Construction Financing to 77% of Cost

    November 15, 2016

    George Smith Partners successfully placed the ground-up construction debt of 49 Class-A apartment rental units in the San Fernando Valley, Los Angeles. Sized to 77% of actual costs, this construction loan will also fund the development of 1,300 square feet of ground-floor retail for residents and the local community. Despite ample development experience in this market, most lenders were unwilling to reach beyond 70% of cost. A strong lender relationship, cobbled with supportive market data and a meaningful repayment guarantee, allowed us to secure 77% of actual cost while maintaining an institutional rate without the use of sub-debt. Priced at LIBOR + 2.95%, the two year term is floored at 3.25%.

    Rate: LIBOR + 2.95%
    Term: 24 Months
    Lender Fee: 0.75%
    LTC: 77.0%
    Recourse

  • Expand

    $8,800,000 Partial Recourse Ground-Up Apartment Construction Financing to 65% of Cost

    June 22, 2016

    Transaction Description: George Smith Partners successfully structured and placed the ground-up construction financing for a Class-A, 24-unit market rate apartment complex adjacent to a prestigious Southern California University. Designed to fulfill demand for non-student, Class-A residential product, the development is a loft-style design consisting entirely of 2 bedroom/2 bathroom units. The 65% of cost loan is priced at PRIME + 1.00% with the seven year term structured as a two year construction period converting to a five year mini-perm fixed at 4.75%. Pre-payable at any time, this loan provides full flexibility to the Sponsor while protecting against maturity default. Top 25% initial recourse becomes non-recourse upon achieving a minimum debt service coverage ratio.

    Challenge: Although the surrounding residential market is extremely strong, the majority of adjacent product is student housing with a very limited amount of comparable market rate product. There is negligible sales velocity to provide new product comparables and the lender/appraiser was required to look outside the immediate market area to support values.

    Solution: George Smith Partners identified a lender active in the greater market area and comfortable with the location and underwritten assumptions. Significant market research was conducted to support demand for market rate apartments and achievable market rents. The demographic study and asset design ultimately supported initial underwritten assumptions. The Sponsor’s market and product experience provided our capital provider with additional comfort.

    Rate: PRIME + 1.00% w/4.75% Floor
    Term: 7 Year Term: 2 Year Construction Period with 5-Year Mini Perm
    Prepayment: Open Prepayment
    LTC: 65.0%
    Recourse: Top 25% w/Burn-Down to Non-Recourse

  • Expand

    $39,900,000 Non-Recourse Ground-Up Development to 65% of Cost

    June 22, 2016

    Transaction Description: George Smith Partners placed the ground-up development of a 292 unit multifamily rental property located in a secondary mid-west market. Although a completion guarantee was provided from a deep-pocket Borrower, a repayment guarantee was not available to sign on the loan. Despite a lack of clarity for several Dodd-Frank provisions, our capital provider committed to funding up to 65% of actual costs based on their interpretation of the HVCRE constraints. Our well-heeled Sponsor has extensive experience in this market with this rental product and mitigated all concerns over its secondary location. Floating at 350 over LIBOR, the three-year non-recourse loan has two options to extend.

    Rate: LIBOR+350
    Term: Three Years plus Two 1 Year Options
    Non-Recourse
    LTC: 65%

  • Expand

    $20,600,000 Ground-Up Construction for a Mixed-Use Boise Multifamily over Retail

    June 15, 2016

    Transaction Description: George Smith Partners arranged the ground-up construction debt to for a 159 unit multifamily over 4,000 square feet of ground-floor retail space in the heart of Boise, Idaho. Our Sponsor has construction/heavy rehab experience in the Boise market, but the project represented a substantial increase of residential rental product. Sized to 75% of total cost, the repayment guarantee (aka recourse) burns–down at Certificate of Occupancy until fully eliminated at stabilization. Priced at LIBOR + 250, there is no interest rate floor for this three year loan. A five-year mini-perm option is also part of the debt package upon stabilization.

    Rate: LIBOR + 2.50%
    Lender Fee: 0.50%
    Term: 36 Months
    LTC: 75.0%
    Recourse: Warm-body; burning down at CofO

  • Expand

    $16,250,000 Non-Recourse Ground-Up Townhome Construction Financing to 65% of Cost

    March 2, 2016

    Transaction Description: George Smith Partners structured the non-recourse ground-up construction financing for 18 luxury townhomes in the La Jolla Village neighborhood of San Diego. Designed to fulfil the demand for Class-A residential product, the townhome style development is centrally located in the heart of La Jolla and is only a few blocks from restaurants, shopping and the bluffs overlooking Torrey Pines and the Pacific Ocean. Sized to 65% of total development cost, the 24 month loan is priced at PRIME + 1.00% with a floor of 4.75%. A construction completion guarantee was provided although there is no repayment guarantee.

    Challenge: The residential market in the area is extremely strong, but there is negligible velocity to provide new product comparables. Cash equity was not fully funded at recordation.

    Solution: Market research was conducted to support sales prices per square foot from the limited residential trades that did execute. Demographics and asset quality supported larger unit footprints and thus the higher “all-in” exit prices. Our capital provider is active in this greater market area and is comfortable with the sell-out analysis. The Sponsor strength and experience in this product added additional comfort and allowed the Lender and Sponsor to fund the remainder of cash equity dollar-for-dollar, simultaneously with construction draws.

    Rate: Prime + 1.00% w/4.75% floor
    Term: 2 Years + Options
    LTC: 65.0%
    LTV: 45.0%