Term: 10 Years
Amortization: 25 Years
Guarantee: Non-recourse with Yield Maintenance
Lender Fee: None
George Smith Partners placed the first major four property/228 unit Multifamily portfolio financing in Odessa/Midland, Texas. The non-recourse, fixed rate loan is priced at 5.8% fixed for 10 years at 75% LTV.
In 2013, Odessa was one of the fastest growing multifamily markets because of the oil/energy industry, even though it is one of the smaller MSAs in the country. In 2014 downward pressure on oil/natural gas caused a downturn in employment and real estate markets. Because of the market volatility only a limited number of lenders felt comfortable with the Odessa market. Before the rebound in 2018, apartment building values had fallen by over 20%.
GSP highlighted market potential based on the rebound in housing and employment and was able to identify a capital provider who was comfortable with this tertiary market and its’ recent rebound. Because of GSP’s extensive market knowledge we were able to lock-in a rate of 5.80% fixed for 10 years. GSP did research in the oil market and the MSA of the subject property and was able to prove to the Lender the future stability of the properties’ cashflows.
Construction Loans Los Angeles | $6,000,000 Non-Recourse Predevelopment Financing for Construction of 170-Unit Multifamily Project in Tarzana, CA
October 24, 2018
George Smith Partners secured $6,000,000 in non-recourse predevelopment financing for a 170-unit ground-up multifamily project in the Tarzana community of Los Angeles, CA. The site is a collection of five contiguous lots, parceled together by the Sponsor to create an opportunity for larger scale development in the area. This financing facility allowed the Sponsor to recuperate some of the invested equity to be used towards continued advancement of the predevelopment for the Project, including but not limited to design and construction drawings, entitlement costs and permits. The Sponsor is currently building another ground-up multifamily project nearby and is an active local investor and developer, owning several retail and mixed-use assets in the area.
GSP sourced a lender who offered a fixed-rate financing facility to lessen the burden of development costs on the Project, recapturing nearly 65% of invested dollars for a bridge through the pre-development phase; it will ultimately be taken out by the construction loan when the Project breaks ground. The identified capital group was already familiar with the site, and was able to offer a flexible and low-cost structure without a prepayment penalty. The application was an expeditious process; GSP was able to facilitate a closing less than three weeks from the date the term sheet was signed. The twelve month fixed rate note was priced at 6.90%, and was sized to 64.5% of cost basis.
October 17, 2018
George Smith Partners successfully arranged the refinance of a 14 building, 120-unit multifamily asset located in the Arden-Arcade neighborhood of Sacramento, CA. GSP worked with a life company with a strong appetite for multifamily lending and ultimately structured a loan in which the Sponsor pulled out $10,000,000 of cash. The non-recourse loan has a fixed rate of 4.24% and refinanced an existing agency loan. Some of the unique features of this loan included: rate lock at application, assumption rights in the event of a sale and future loan advances/top-offs upon increase in NOI.
$13,130,000 Acquisition and Reposition Financing with Low 3% Going-In Debt Yield on Two Multifamily Properties in the San Fernando Valley, California
October 17, 2018
GSP arranged the $13,130,000 first mortgage on two 1960’s vintage multifamily assets in the San Fernando Valley. The National Balance Sheet Lender provided a non-recourse loan at 75% of total project cost including 100% of future CapEx funds to complete an extensive interior and exterior renovation of $45,500 per unit. Interest expense is not incurred on CapEx funds until drawn. The 30-Day LIBOR plus 3.20% coupon requires interest rate risk protection throughout the term, and in order to minimize associated sponsor cost the Lender structured the initial term as two years, with three, one-year extensions and no hurdles or fees for the first extension. Due to low going-in cash flow, the Lender structured an interest reserve to cover debt service during the peak reposition period.
October 10, 2018
George Smith Partners secured $28,700,000 in proceeds for the acquisition of a 254-unit multifamily property in Boise, Idaho. While near full occupancy at close, the Property has dated interiors and common areas, as well as some deferred maintenance. A capital budget was drafted by our Sponsor for unit upgrades at lease-turn as well as common area improvements. Proceeds are structured with $25,500,000 for the initial funding plus an additional $3,200,000 for capital improvements. Floating at 30 day LIBOR plus 3.0%, the two-year term will be paid current, monthly out of cash flow and does not carry a pre-payment penalty. An earn-out for an additional $2,300,000 was structured once the Subject Property achieves an 8.5% debt yield.
Challenges and Solutions:
The Sponsor was in a 1031 exchange and needed to close quickly as their exchange provided a narrow window to close. While the going in cap rate provided meaningful yield Day 1, GSP focused their marketing efforts on the Sponsor’s proven track record to execute on their previous deals.
Several capital providers passed on the deal due to the fact Boise is not a top MSA by population, even though it was recently named as America’s fastest growing city by Forbes Magazine. Certainty of execution was required for this short acquisition escrow, and the need to identify a capital provider knowledgeable with the Boise market was paramount in avoiding educational “ramp-up” delays so that escrow would fund timely.
GSP vetted this location and confirmed market knowledge with loan decision makers prior to the issuance of an application. The loan closed within 40 days of GSP’s engagement on the deal.
$7,300,000 Acquisition Financing 5 Day Close of 48 Unit Apartment Building in the Koreatown Neighborhood of Los Angeles
August 1, 2018
George Smith Partners successfully arranged the acquisition financing of a 48 unit multifamily building located in the Koreatown neighborhood of Los Angeles. The Borrower needed a quick close loan to win the acquisition and also needed as much leverage as possible. With numerous tenants paying severely under market rent, the borrower’s business plan was to buy these tenants out and release the units at market rent. GSP ultimately worked with a senior lender and a mezzanine lender to maximize proceeds, while still closing the loan in time for the acquisition. GSP was able to push proceeds on the deal to 84% of the purchase price. The non-recourse loan has a 12 month term and a fixed blended interest rate of 8.24%. GSP additionally worked with the Lender to remove any prepayment penalty, This gave the Borrower the flexibility to refinance with permanent financing should he execute his business plan early. This is increasingly important in a rising interest rate environment.
August 1, 2018
George Smith Partners secured $9,150,000 for the non-recourse cash-out refinance of a newly built 25-unit multifamily building located in Los Angeles. The building is situated in one of the most sought after areas in Los Angeles and is in close proximity to popular restaurants, bars and entertainment in nearby Culver City. The construction take-out permanent loan is fixed at 5.04% for ten years with full term interest-only and has a yield maintenance prepayment penalty structure.
The building was in lease up when the financing process started. Thus, the owner did not have any seasoning on the newly leased units nor any historical operating expenses.
GSP identified a capital source who was willing to provide proceeds at over 90% of cost and understood the strength of the asset in addition to the experience of the Developer. Based on these strengths, the Lender was able to underwrite to in-place income without seasoning, proforma operating expenses, and a 7.35% debt yield, which maximized loan proceeds. The Lender was able to fund once the property achieved 80% physical occupancy. The Sponsor locked a full term interest-only structure, which is advantageous to the property’s cash flow as the new leases continue to season.
Rate: 5.04% Fixed for 10 years
Term: 10 years
Amortization: Interest Only
Prepayment Penalty: Yield Maintenance
DCR: 1.35x on an IO basis
Origination Fees: Par