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

Southern California Construction Loans – 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.

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.

Transaction Description: Gary E. Mozer, Katie H. Rodd, Michael Anderson and Kyle Howerton arranged $38,500,000 in 10 year on-book non-recourse acquisition financing from a national life insurance company on a 164-unit Class A multifamily property in Ventura County, Southern California. The subject is part of a masterplanned community with a complicated HOA structure. The newly constructed property was built in two phases and was in lease-up during the closing process. Sized to 70% of acquisition, the loan is priced at 185 basis points over the 10-year Treasury and locked at 3.90% at application execution, eliminating interest rate fluctuation during the closing process even though the property had not yet reached stabilized occupancy. Five years of Interest Only payments maximizes the Sponsor’s cash flow during the initial hold period but still provides the lender with acceptable balloon balance at the end of the term.

Transaction Description: George Smith Partners successfully sourced the 70% of cost debt for the ground up construction of a multi-unit retail center located in South Los Angeles. Our client owns the leasehold interest in the land but holds an option to purchase the dirt at any time. Half of the retail units were preleased at close of escrow. Floating at WSJ Prime + 1.00%, the loan carries a 5.25% floor. The sponsors prior successful projects and strong development resume mitigated light liquidity and ground lease concerns. The fee purchase option upon development completion is anticipated to maximize imputed equity once built, leased and stabilized.