Rate: 10.25% Interest Only
Term: 24 Month Construction Loan
Transaction Description: GSP arranged ground-up construction financing for a 29-unit for-sale condominium development in the Koreatown sub-market of Los Angeles. The client was a local general contractor who partnered with an owner who contributed the land. The goal was to obtain highly leveraged, non-recourse construction financing and provide no additional equity. The Sponsor tried to access bank financing on their own before coming to GSP.
Challenge: Non-recourse construction financing is very difficult, especially for first time developers. Lenders view ground-up condo construction as one of the most risky types of financing. In addition, the Koreatown market has seen lots of multifamily developments, but there has been little recent condo construction in this market since the last real estate cycle. Also, the insurance and other last minute expenses increased the overall project cost by $500,000.
Solution: Using it relationships, GSP was able to identify a non-recourse construction lender who would provide highly leveraged construction financing. Because the ownership did not want to bring in new capital, it was also critical for the project to be correctly underwritten and achieve certain loan to cost and loan to value targets. When it was discovered that additional insurance would be needed to protect the contractor and the long-term welfare of the project, the lender agreed to increase the loan by $500,000 a few days before closing to provide capital for unexpected costs. This allowed us to close the loan and start construction.
Assistant Vice President
May 23, 2018
GSP successfully placed $13,700,000 in first mortgage financing for completion of construction on an approximately 10,000 square foot luxury single-family residence in Beverly Hills. The 12-month initial term has two three-month extension options with a 0.375% fee payable per extension, and Interest Only payments during the life of the loan. If the loan is paid off in less than nine months, the sponsor benefits from a 0.25% rebate on the 1.0% lender loan origination fee.
The loan funds up to 70% of lender-approved costs and the interest rate floats at 1-Month LIBOR plus 6.1% (8.0% coupon at closing). The cash neutral transaction allowed the sponsor to refinance out of a prior construction loan and release $1,500,000 from a pledge account with the prior lender in order to free up equity.
The offshore sponsor provided a completion guaranty and a repayment guaranty capped at $5,000,000.
Rate: 8.0% at closing (1 Month LIBOR + 6.1%)
Term: 12 Months
Amortization: Interest Only
LTC: 70% of lender approved costs
Guaranty: Completion Guaranty; Capped Repayment Guaranty
Lender Fee: 1.0%; 0.25% rebate to sponsor if loan paid off in less than 9 months
May 16, 2018
George Smith Partners successfully closed a construction take-out and bridge refinance for a 213-key boutique lifestyle hotel located in the Southwest. The proceeds were used to refinance costlier construction financing, including a mezzanine facility. The loan featured an earnout of additional proceeds as well as a capital improvements budget. The hotel recently opened and thus significant operating history was not available. Additionally, the in-depth rehabilitation elevated the exterior corridor hotel to a new market segment which brought with it unique challenges.
GSP’s mandate was to source a lender who not only had the ability to execute in a timely fashion, but one who recognized the value in the excellent location and strategic positioning of the Hotel. The selected lender needed to have a deep understanding of all aspects of the deal, from a millennial-focused customer demographic, to the significant food and beverage component reflected in the Hotel’s two restaurants and secret whisky bar.
The selected lender was able to recognize the unique value proposition of the property and the strong sponsorship involved in the project.
March 21, 2018
George Smith Partners arranged $33,000,000 of construction financing for a mixed-use project located in the Southwest. The project is set to include 165 micro-unit apartments, 20,000 square feet of retail, and 43,000 square feet of office space. The apartments comprise a majority of the income, but it was very hard to obtain quality comps given the lack of micro-unit inventory in the market. GSP identified a lender that was able to get comfortable with the micro-unit concept even with a lack of comparable properties. The Lender was also comfortable giving the Sponsor credit for an increase in the value of the land since acquisition, eliminating the need for any new cash at closing. The non-recourse loan is sized to 80% of total cost (including the appreciation in the land) and is priced at LIBOR + 8.75%. The financing carries an 18-month term with three, 6-month extensions.
$21,025,000 75% LTV, Non-Recourse Predevelopment Financing for a Land Parcel Adjacent to a Southern California University
March 14, 2018
GSP arranged the $21,025,000 ($175/Land SF), non-recourse first mortgage from a debt fund for the acquisition of an infill 2.76-acre land parcel located adjacent to a major Southern California university. The acquisition loan will be taken out with a construction loan upon receipt of entitlements for a large-scale student housing redevelopment. GSP worked with borrower and lender to tailor a unique loan structure that provides financing during the entitlement period via an interest and carry reserve. The lender was able to provide a high-leverage loan on an unentitled parcel that provides no cash flow due to the project’s streamlined “by right” entitlement process, experienced sponsorship, and strong market fundamentals. Sized to 75% of as-is value, the acquisition loan priced at 7.25% over One-Month LIBOR for the 24-month loan duration.
$45,000,000 Bridge Loan – Construction Refinance for a 131-Key Luxury Lifestyle Hotel in San Francisco
March 14, 2018
George Smith Partners successfully closed a construction take-out and bridge refinance for a 131-key luxury/lifestyle hotel located in the heart of the trendy Mid-Market neighborhood of San Francisco. The proceeds were used to refinance costlier construction financing, including a large mezzanine facility. The loan featured an interest reserve, T&I reserve, and a working capital reserve. Additionally, the existing capital stack included Historical and New Market Tax Credits, and EB-5 Capital – adding to the overall complexity of the Transaction.
GSP’s mandate was to source a lender who not only had the existing wherewithal to understand the complex existing capital stack, but also one who would recognize the value in the unique and strategic positioning of the Hotel. From non-traditional lodging options, to significant Food and Beverage offerings, the Hotel stands out from the traditional hotel offering by spanning over multiple lodging markets: luxury and lifestyle. The seasoned Sponsorship group has a proven track record of developing and operating hotels of similar caliber.
The selected lender was able to recognize the unique positioning of the property’s offering and the strong sponsorship involved in the project.
All Terms Confidential
February 28, 2018
George Smith Partners placed the take-out of a build-to-suit single-tenant GSA office in a tertiary Southern California market. The ten year term loan matches the investment grade credit lease term. There are no tenant “outs” during the initial term for this gross lease. Fixed for five years at 4.5%, the loan will reset year six at the five-year CMT, floored at the current start rate. Amortized over 30 years and sized to 70% of stabilized value, our Sponsor was able to recoup a portion of his cash equity. There are no TI/LC reserves taken until the beginning of the sixth year and no prepayment penalty at any time.
The application was executed prior to obtaining the Certificate of Occupancy. Additional off-sites mandated by the local municipality added to the development costs and cash equity contribution. State mandated living wage requirements adds an accounting delay that must be signed-off by the State prior to being able to secure lien releases from sub-contractors. Indexes moved against the Borrower, increasing his cost of capital.
Post loan commitment, our portfolio capital provider agreed to increase proceeds by $100,000 to recapitalize our Sponsor for a portion of his cost over-runs. The lender also agreed to a partial set-aside/hold-back until the notice to file mechanics liens had expired. The high construction quality and investment grade credit rated tenant incentivized our portfolio capital provider to hold the applied-for rate through the index run-up.