$41,100,000 Non-Recourse Stretch Senior Construction Loan for 180 Micro-Unit Multifamily Development; Hollywood, CA
May 12, 2021
George Smith Partners placed a $41,100,000 Non-Recourse, stretch senior construction loan for the ground-up development of a 6-story micro unit/co-living project in Hollywood, California. When complete, the Project will consist of 180 fully furnished, all-inclusive micro units within 49 pods with an average micro unit size of 276 sf. The Project lies in an Opportunity Zone.
Several hurdles presented themselves such as concerns about the newness of the asset class and the availability of direct comparable properties. Also, the Sponsor had already begun excavation & shoring work which created challenges in obtaining full title insurance coverage.
GSP focused on the Project’s per micro unit price rather than a per pod price to get the Lender comfortable with comparable projects. Further attention was given to the Project’s affordability as each micro unit comes fully furnished with an all-inclusive rental rate. GSP also stressed the Project’s unparalleled location, walkability to every major amenity in Los Angeles, the number of local employer hubs, and significant demand drivers from transient tenants looking for fully furnished offerings. GSP worked with the title company to successfully resolve all title insurance challenges that were presented and executing a high-profile marketing campaign to ensure that the capital markets appropriately understood the unique asset type. The process also included structuring and marketing the deal with several different capital stack variations (including a concurrent separate marketing effort for an A/B structure) to find the best financing option for the transaction. These efforts resulted in a successfully expedited process with a close in approximately 45 days from entering application.
April 28, 2021
George Smith Partners arranged $19,550,000 of senior construction financing for a ground-up cold storage facility located in Jurupa Valley, CA. The 125,000 square foot facility will serve as the headquarters for West Coast Cold Storage, a “for rent” cold storage provider focused on providing both refrigerated and frozen space to their Southern California customers. Existing cold storage facilities nationwide have an average age of over 40 years, demonstrating the need for new development within the space. With the sudden increase in online grocery orders and delivery, demand for well-located cold storage space has spiked. This flagship building will feature increased energy efficiencies and provide a variety of racking configurations to accommodate customer needs.
Located two blocks from State Highway 60, the Subject Property offers clients immediate access to the entire Inland Empire and Northern San Diego County. This location is also part of the Port of Los Angeles transportation line that handles 20% of incoming U.S. cargo and feeds all Southern California.
Structured to minimize the Sponsor’s equity investment, the non-recourse loan is sized to 81% of development costs and carries an 18-month term. Minimum interest requirements were negotiated to less than 5.5% of the committed loan amount as cold storage has a much shorter construction timeline when compared to other product types. Origination fees were allocated to post Certificate of Occupancy financing to further reduce the cash equity needed to close.
Origination Fee: 0.50%
Term: 18 Months Initial Term, One 6-Month Extension
Amortization: Interest Only
Prepayment: Subject to Minimum Interest Estimated at 12 Months
Guaranty: Non-Recourse with Completion Guaranty
- Advisors: Patrick O’Donnell
$58,000,000 Life Co. & Preferred Equity Non-Recourse Construction Financing; Culver City Adjacent, CA
April 28, 2021
George Smith Partners successfully closed $58,000,000 in non-recourse construction financing for a seven-story, mixed use development across from Sony Pictures Studios and adjacent to Culver City, CA. The Project features 139 apartment units over 1,969 SF of ground floor retail. The Sponsor received a density bonus thanks to TOC incentives, in exchange for allocating 14 affordable units.
While this is the second U.S. project – the first was also financed by GSP – for a successful international developer, the pool of capital providers was significantly reduced due to the borrowing entity being headquartered in a foreign country. Presenting this deal during the height of the COVID-19 pandemic also presented significant challenges. GSP leveraged its structured financing expertise, lender relationships, strength of the Project and the Culver City market to negotiate the most desirable terms for the Sponsor.
The financings are comprised of $42,000,000 in senior construction debt from a Life Co. lender and $16,000,000 in preferred equity and includes a substantial amount in recap funds to the Sponsor at closing. The term is five years, with interest only payments and no prepayment penalty upon Certificate of Occupancy. The senior note is LIBOR + 390 and the preferred equity investment’s interest will be fully accrued during the entire term, thereby reducing the amount of interest reserve and the Sponsor’s initial cash equity contribution.
$44,500,000 Heavy Bridge Construction Financing to Add Several Uses to an Existing Office and Warehouse; Secondary Market; San Luis Obispo, CA
April 14, 2021
George Smith Partners arranged $44,500,000 for heavy bridge financing in San Louis Obispo, CA to recapitalize and fund construction for additional uses on an existing asset. The completed Project will include five uses including multifamily, warehouse, office, self-storage, and a brewery. This is among the largest private projects actively in development in the local market.
The Sponsor has been very creative in obtaining the highest and best use for the asset in a supply constrained market. Despite challenges facing construction projects in today’s volatile commodity market, GSP was able to secure a capital provider to structure high leverage supported by the strong market and underwriting.
March 31, 2021
George Smith Partners successfully advised on $7,100,000 in joint venture equity financing for a 109-unit build-to-rent and Opportunity Zone transaction in Phoenix, AZ. This single family for rent community will offer one, two and three-bedroom detached homes with upscale furnishings and private yards for most units. This was the first transaction for our Sponsor who is optimistic about the popularity and emerging trend of the build-to-rent niche.
March 31, 2021
George Smith Partners secured a $7,685,000 construction loan for the completion of a development project in Los Angeles, California. The construction project was being fully paid out of pocket and had just finished two levels of subterranean parking. At this point of completion, the Sponsors decided to finance the remaining project costs instead of coming out of pocket the rest of the way. Many lenders didn’t want to finance the Project due to the mid-construction risk and those that did wanted some sort of banking relationship/deposit to come with the Project. GSP secured a capital source that was comfortable with the mid-construction project and didn’t require the Sponsors to bring in any fresh equity nor did they require any banking deposits.
Term: 24 months + two 6-month options to extend
Amortization: Interest Only
Guaranty: Full recourse
- Advisors: Reuven Risch
97% Financing; $39,650,000 Construction Debt and $18,750,000 Equity for 153-Unit Multifamily Opportunity Zone Development; Downtown Sacramento
March 24, 2021
George Smith Partners successfully placed $39,650,000 in construction debt and $18,750,000 in limited partner equity for the ground up construction of an Opportunity Zone multifamily development with ground floor retail in Downtown Sacramento, at the peak of COVID. The challenges included uncertainty regarding COVID during the pre-vaccine period, political uncertainty, an offshore borrower, and California’s tenant friendly policies. Many investors were too cautious to make a commitment in the middle of COVID with no anticipated end in sight. These risks were offset by exceptional sponsorship, a strong market, and a well margined deal.
The 153-unit Project is the first in a series of planned multifamily developments in the region by Anthem Properties Group of Canada. GSP leveraged its expertise and relationships to find a lender to serve the Sponsor and push through an arduous due diligence process to an expeditious closing. GSP helped structure the partnership agreement to best serve Opportunity Zone taxation rules and ensure the most beneficial long-term returns between the Capital Providers and the Sponsor.
$27,180,000 Construction Financing to 74% LTC for a 168-Unit Workforce Housing Project; Saint Louis, MO
March 17, 2021
George Smith Partners successfully placed $27,180,000 (74% LTC) in construction financing to fund the ground-up development of a first-of-its-kind in the market, multi-property, 168-unit workforce housing project in an infill and trendy neighborhood of Saint Louis, Missouri. GSP leveraged its diverse lender relationships to source a construction loan for the unique project that is comprised of six individual buildings ranging from 18-unit (for rent) townhomes to 35-unit apartment buildings. Compounding the Project’s complexity is the requirement to cap rents, for a period of 10 years, on 51% of the units to be affordable for 80% AMI and the remaining 49% of units to be affordable for 100% AMI. Furthermore, although all six buildings are located within a one-block radius of each other, none of the sites are contiguous. The GSP-sourced loan was tailored to meet the needs of both the Sponsor and its equity partner. The equity partner capped construction leverage to 67.5% LTC, however GSP structured the loan to include a $2,500,000 earnout, which is sized to 74% LTC. GSP and the Sponsor were ultimately successful in obtaining approval from the equity partner for the higher-leverage earnout which is released upon 90% occupancy and a 1.25x DSCR on T-3 income.
Term: 48 months
Amortization: 30-months interest only; 30-year amortization during months 31-39; 27.5-year amortization thereafter
Prepayment: None; open in whole or in part at any time
Guaranty: Full repayment guarantee that burns down to a 50% repayment guarantee upon certificate of occupancy
$7,500,000 Preferred Equity Investment to 83% LTC at a 4.94% blended coupon for the Ground-Up Development of a Class-A Multifamily Project; Saint Louis, MO
March 3, 2021
George Smith Partners successfully placed $7,500,000 in preferred equity with last dollar exposure of 83% loan-to-cost ($222,000/unit) for the ground-up construction of a 205-unit, class-A apartment project in an irreplaceable location within the Central West End submarket of Saint Louis, Missouri. The preferred equity investment priced at 12.25% was sourced during the COVID-19 pandemic through an east coast real estate investment management company. GSP worked with the Sponsor to tailor a capitalization that increased leverage to a reasonable level above the 70% loan-to-cost senior loan, reduced overall project costs through minimizing the preferred return current pay portion, mitigated sponsorship risk through negotiated performance hurdles, and was highly accretive to common equity returns. Although the preferred equity investment was made during height of COVID-19 safer-at-home orders, the investor’s concerns were mitigated through the institutional sponsor’s local experience, market, and submarket performance during the pandemic, and strong project fundamentals.
Fee: 1% origination fee
Term: 36 months with two, 12-month extension options
Prepayment: Open in whole or in part at any time with a two-year minimum yield
$16,500,000 Senior Construction Financing, 79% LTC for 57-Unit Multifamily Development; Toluca Lake, CA
March 3, 2021
George Smith Partners secured $16,500,000 of senior construction financing for the development of a 57-unit multifamily building in Toluca Lake, CA. The Sponsor purchased three contiguous lots with this development in mind. The combined land area of the lots allowed them to increase the density of the single-building Project.
The uncertainty brought on by the pandemic had lenders heavily scrutinizing projected rental rates at completion. GSP secured a capital source that understood the long-term growth that the submarket should experience post-pandemic. The strong financial position of the Sponsor, along with the lengthy track record of the general contractor, helped to push the leverage up to 79% LTC. The financing allows the Sponsor to provide the area with quality rental housing, which is sorely needed in the undersupplied submarket.
The recourse financing is priced at WSJ PRIME + 0.375% with a floor rate of 4.650%. The 18-month term is coupled with a 0.625% origination fee and is open to prepayment. There is also the ability to roll the construction loan into permanent financing at the option of the Sponsor. The rate cannot be locked until building stabilization but would be priced at 2.80% for a 5-year term at today’s rates.
$60,200,000 Ground-Up Construction Financing, 85% LTC, 6.65% Blended Coupon on a 307-Unit, Class-A Apartment Community; St. Louis City, MO
February 17, 2021
George Smith Partners successfully placed $60,200,000 in high-leverage construction financing, which funded 85% of total project cost for the construction of a 307-unit mixed-use multifamily and retail project located in the trendy St. Louis City neighborhood of The Grove. GSP leveraged its lender relationships, capitalization structuring acumen, local market expertise, and strong project fundamentals to arrange the most accretive financing structure available in the market during the peak of the COVID-19 pandemic. The capitalization included a senior loan to 60% loan-to-cost and a preferred equity investment with last-dollar exposure to 85% of total project cost. The preferred equity investment is non-recourse and the senior loan required only a top-end 25% repayment guarantee. Additionally, the Lender and preferred equity investor gave credit for a lift in land value above the Borrower’s actual cost due to the Borrower having created substantial value through entitlements and development incentives.
Rate: 6.65% (blended coupon)
Term: Three-year initial term plus two, 12-month extension options
Amortization: Interest only
Prepayment: 2%, 1%, open
Guaranty: 25% repayment guarantee on senior loan only; does not apply to the non-recourse preferred equity investment
Lender Fee: 0.82% blended
$40,000,000 Construction Completion Loan at 8.00% Fixed, Interest-Only on a 192-Unit Multifamily; Vancouver, WA
January 27, 2021
George Smith Partners successfully arranged $40,000,000 in construction completion financing for a 192-unit multifamily community in Vancouver, WA less than 12 miles from downtown Portland, OR.
The Property consists of three completed buildings that started leasing in late April of last year and were 15.9% leased at the underwritten rents upon closing. GSP was successful in quickly sourcing multiple term sheets and ultimately closed within weeks of going into application with the Lender. The rapid execution allowed the Sponsor to close on an approximately 90% of purchase price (80% of total cost) in a situation where no further extensions were available, and time was of the essence.
The equity stack was highly structured with multiple tranches of GP and LP equity.
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