The Next Generation of Co-Living: $14,100,000, 65% LTC Construction Loan for Co-Living Project; Los Angeles, CA
October 28, 2020
Transaction Description: George Smith Partners placed the $14,100,000 construction to perm loan for an 86 micro-unit, co-living development located in an opportunity zone for an institutional sponsor and a national private equity firm. Optimized to provide a complete living experience with full in-unit accommodations on shorter term leases, the Project represents the first of its kind in the Los Angeles market. The 65% construction loan converts to a 5-year mini-perm loan fixed at 4.5%, synergizing with the Borrower’s long-term strategy and maximizes the opportunity zone benefits by eliminating future financial risks.
Challenges: The Project was heavily scrutinized due to COVID-19 and the concerns of close quarter living. Additional concerns arose from a macro level as the nation began to see an exodus from large cities. As further stress was placed on the underwritten income, the capital markets were struggling to find the last dollars needed. Additionally, many platforms had already largely paused construction lending, let alone found the risk tolerance to push leverage back to pre-lockdown levels. Finally, the Project is situated in an opportunity zone and the unique capital structure remains a relatively new concept for most lenders.
Solutions: GSP’s main objective was to secure a lender that was comfortable waiving underwritten DSCR and LTV requirements. It was also critical that the Lender would understand the intricately designed structural advantages the Project offered and how the product differentiated from everything else currently on the market. We further showcased that the Sponsor was of institutional pedigree, including their partnership with a national private equity group that specialized in opportunity zone investments and experience being among the most tenured co-living developers in the US.
September 30, 2020
George Smith Partners secured a $4,690,000 construction loan with a 2-year term that converts to a 5-year permanent loan upon completion of construction for a total term of 7 years. The loan is for a medical office building in Oxnard, CA. The construction loan floats at Prime plus .5% with a floor rate of 3.75% and the mini perm is expected to have a fixed interest rate of 3.65%. The mini-perm carries a step down prepayment, but there is no prepay during the construction term, allowing the borrowers to secure more advantageous capital depending on the capital markets.
The Sponsorship sought long term construction-to-fixed capital shortly after the government-mandated shelter in place which caused significant disruption to the CRE capital markets. GSP needed to secure a high leverage loan to complete the ongoing construction of the Project which had commenced in 2019. With active construction on the Project, GSP needed to secure a lender capable of understanding various lien priorities, a historic building designation that changed construction plans and timelines, vandalism, and a change of general contractors all during the COVID-19 pandemic.
GSP was able to demonstrate the necessity of new medical offices during the height of the shutdown to generate a competitive lending environment, and to secure the 70% LTV construction loan. To reduce valuation risk, GSP negotiated that the existing appraisal performed pre-COVID would be utilized by the selected lender. To obtain maximum proceeds, GSP also worked with the Lender to collateralize adjacent unentitled land owned by the Sponsorship. The vandalism and the historic designation caused delay. However, GSP showed that the change in the GC was a strategic move that would allow for the completion of the construction and the ability of the sponsorship to obtain C of O in early 2021. This will allow the Sponsorship to hold the completely modernized Medical Office building with a fixed low rate through 2027.
$31,500,000 Construction Financing to 72.5% LTC for a 240-Unit Workforce Housing Project; Sheboygan, WI
September 23, 2020
George Smith Partners successfully placed $31,500,000 (72.5% LTC; 70%LTV) in construction financing to fund the ground-up development of a 240-unit, workforce housing project in an infill neighborhood of tertiary market, Sheboygan, Wisconsin. GSP leveraged its diverse lender relationships to source a construction loan for this large project located in a small market during the peak of the COVID-19 pandemic. GSP was able to focus lenders on sponsorship quality and how the project was tailored to take advantage of Sheboygan’s strong market fundamentals. This includes an insatiable demand for workforce housing driven by numerous manufacturers being in the county including Kohler, Sargento, and Johnsonville among others. A Tax increment financing (TIF) district was created to offset a portion of the Project’s costs, which added another layer of complexity as GSP was directed to source a lender that would also underwrite the projected TIF cashflows to increase the construction loan leverage.
Term: 48 months
Amortization: 32-months interest only; 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
September 16, 2020
George Smith Partners placed a $11,700,000 construction loan to build a logistics yard that includes trailer parking, auto parking and a maintenance facility. The fenced and secured facility is being built on a speculative basis although there is unmet demand.
The marketing of the asset during the COVID-19 pandemic was difficult given bank resources first went to asset management and then PPP. The lenders in the market wanted “easy” deals such as low leverage multifamily, build to suits and infill industrial. The Sponsor’s expertise, market knowledge and demand for the product created a competitive lending environment. After talking to over 50 capital providers we had three compete for the loan. Structure, pricing, certainty of execution and speed to close narrowed the lender choice. The chosen Capital Provider went to full credit committee before issuing the application given the specialty nature of the asset. The credit committee also approved all terms negotiated/changed in the application before the process began. This gave us confidence that the chosen Capital Provider would execute on the original terms in the application while other Capital Providers have altered terms during the COVID-19 pandemic.
May 20, 2020
George Smith Partners successfully secured a high leverage $21,700,000 non-recourse, Construction-to-Perm loan to develop a six-building, 966-unit, climate controlled, Class-A self-storage facility near Stevenson Ranch in the Santa Clarita Valley, California.
The Sponsor, while very experienced in other asset classes, engaged GSP to source the full capital stack (debt, equity and carve-outs guarantor) for his first self-storage project. New Building & Safety codes that took effect in 2020 resulted in increased costs and delays. In order to obtain certified pads by the end of 2019, the entitlements in-place had to be vetted and the horizontal work needed to start prior to securing construction financing. The impacts of Covid-19 resulted in multiple delays from subcontractors, County inspectors, and in pulling permits due to County offices being closed.
GSP was able to source an investor from its pool of strong relationships who provided the equity. GSP focused on the market necessity for storage units in the desirable and growing community of Santa Clarita Valley, and successfully negotiated an agreement with Public Storage to operate the facility. GSP identified a capital provider to not only extend the financing commitment multiple times, but also to execute a structured, non-recourse, low-rate loan with the same terms agreed upon prior to Covid-19.
$7,025,000 Non-Recourse 77% LTC Adaptive Re-Use Construction to Perm; 3.50% Fixed for 10-Years; Southern California
April 29, 2020
George Smith Partners arranged $7,025,000 in non-recourse construction to permanent financing for the adaptive re-use of an existing vacant bank branch building to a medical office building. Located in a prime Southern California submarket and sized to 77% loan to cost, the construction facility consists of an initial funding of $4,825,000 with future draws of $2,200,000 to complete the reposition of the Property. The non-recourse loan is fixed for 10-years at a rate of 3.50% with three years of interest only then converting to a 30-year amortization schedule for the remaining loan term. The loan is structured with a step-down pre-payment schedule of 4%,3%,2%,1% and open thereafter with no pre-payment penalty for added flexibility.
$19,100,000 Construction Financing to 92.5% LTC on a 111-Unit, Class-A Apartment Community; St. Louis City, Missouri
April 8, 2020
George Smith Partners successfully placed $19,100,000 in construction financing, which funded 92.5% of the total project cost for the construction of a 111-unit second phase of a larger mixed-use multifamily and retail project located in the trendy St. Louis City neighborhood of The Grove. The financing structure included a senior loan to 85% LTC and a preferred equity investment with last-dollar exposure to 92.5% of total project cost. The preferred equity investment is non-recourse and the senior loan provides for only a 50% repayment guarantee that burns down to 25% upon certificate of occupancy. Additionally, the Lender and preferred equity investor gave credit for a lift in land value above the Borrower’s actual cost due to the Sponsor having owned the land since 2016 and it being the second phase of a larger project. GSP leveraged its expertise of the St. Louis market, long-standing lender relationships, and capital markets creativity to achieve the Sponsors goals of minimizing cash equity invested into the project due to how much value is being created in this phase of the project.
Term: Twenty-four-month initial term with one, 12-month extension option
Amortization: Interest only
Prepayment: Nine-months minimum interest
Guaranty: 50% repayment guarantee that burns down to 25% repayment guarantee upon certificate of occupancy (on senior loan only; does not apply to the non-recourse preferred equity investment)
$4,500,000 Non-Recourse Self Storage Adaptive Reuse Construction Financing Fixed at 4.75%; Orlando, FL
March 25, 2020
George Smith Partners placed $4,500,000 in non-recourse construction financing for the adaptive reuse of a big box retail furniture store to convert to a 1,250-unit state of the art self-storage facility. The Property is located in Orlando, Florida, within a Qualified Opportunity Zone (QOZ) and was capitalized with a QOZ equity partner. Deal requirements included a non-recourse bank execution and best possible rate given the low leverage ask resulting from the QOZ equity partner’s significant investment in the Project.
GSP identified a bank lender that understood self-storage construction and found the institutional sponsorship attractive. The Capital Provider was willing to offer a simple, non-recourse execution and a swap product that resulted in a 4.75% fixed rate for the duration of the loan. A four-year initial term was offered to accommodate for the longer lease-up velocity common among self-storage properties.
Rate: 4.75% fixed (Swapped out 1 Month Libor + 315 at closing)
Term: 4 years with a 2-year extension
Amortization: Interest only for the initial term; 25-year amortization thereafter
Prepayment Penalty: None (apart from Swap breakage)
- Advisors: Zachary Streit
$12,375,000 Construction Loan for the Development of a 34-Unit Multifamily Property; 75% LTC; LIBOR+2.45%; Los Angeles, CA
March 25, 2020
George Smith Partners secured $12,375,000 in proceeds for the development of a 34-unit multifamily property located in the Greater Wilshire/Hancock Park area of Los Angeles. The proposed development will consist of 31 market rate units and 3 affordable units for very low-income households that are to remain affordable for a period of 55 years. Building plans were approved prior to loan funding; construction is scheduled to commence in March 2020 with an estimated completion date of approximately August 2021, resulting in an 18-month construction period.
The loan has a term of 24 months from closing with two 6-month extension options. The recourse loan will be secured by the land and the to-be constructed building. The fully funded loan represents 75% of the total project capitalization. The loan will be interest only for the 24-month term floating at 30-Day LIBOR + 2.45%. Upon completion the development will represent excellent quality multifamily units in an in-fill Los Angeles neighborhood. There are several projects currently under-construction in immediate proximity that will be competitive with the Subject Property. GSP selected a capital provider that was knowledgeable about the project’s location and the Sponsor’s experience to mitigate the new supply concerns.
February 19, 2020
George Smith Partners secured a $30,000,000 loan for the construction of a 161-unit, Class A mixed use development in downtown Boise, Idaho. The Project is positioned to become the premiere development site in Boise and will serve the continued growth of the greater Treasure Valley. As one of the fastest growing MSA’s in the U.S., Boise has seen an increased demand for more housing to meet its population growth.
Due to the location, architecture, and amenities, the 8-story project was underwritten to a valuation which included rents 20% above market. This provided a challenge when marketing the transaction as the market, despite the rapid expansion, is less than 750,000 people and only recently started to see an influx of institutional capital. Sized to 60% LTC and 50% LTV the asset ultimately received best-in-class pricing over a three-year term with two, one-year extensions. The high net worth sponsorship was comfortable with recourse in order to obtain a loan from a national institution with flexible capital.
$23,500,000 Construction Loan Take-Out of the 30-Acre FBO and Airplane Hangars Adjacent to the Van Nuys Airport
February 12, 2020
George Smith Partners placed a $23,500,000 construction loan take-out for the 30-acre development of the piston driven airplane hangars and FBO (Fixed Base Operations) adjacent to the Van Nuys Airport. Although not yet completed and four or five months from the final certificate of occupancy, our perm lender agreed to fund without the requirement of a hold-back due to the ample cash flow in place at the time of the loan funding.
Van Nuys is the busiest general aviation airport (non-scheduled flights) with over 800 operations daily (take-off or landing). It services LAX as an over-flow for smaller turbine and all piston driven air traffic. This location is vital to the City Department of the Los Angeles World Airports (LAWA) that administers this airport and owns the land surrounding all sides of the two runways.
At funding, the loan floats at Prime less 1.25% but 75% of the outstanding balance will be SWAPed at a future date; currently at 3.58% for the full 16-year term. The remaining 25% balance will continue to float. Structured as a self-liquidating loan, it will amortize over 15 years after the first year of interest only. The loan is open for future advances during the IO period if requested.
February 5, 2020
George Smith Partners successfully arranged $9,400,000 in non-recourse construction financing for the development of a 15-unit luxury apartment building in West Los Angeles. The Property will be comprised of a mix of 1-bedroom and 2-bedroom units and will include 28 parking spaces. The Class A asset sits in a prime location that adjoins some of Los Angeles most sought-after submarkets. Upon completion tenants will have world class views and easy access to major thoroughfares of the City.
The Sponsor has owned the site for over twenty years and after relocating existing tenants to make way for the construction of the new luxury building, he raised an existing 16-unit apartment building. Despite the low land basis, at a total cost at over $1 million per door, it was difficult to find comparables to justify the completed value in support of the requested loan amount.
GSP accessed its extensive lender network to identify a best-in-class construction lender to provide non-recourse construction financing for the Sponsor. GSP’s longstanding history with this lender allowed for a flexible and streamlined closing process that was favorable to the Sponsor’s project timeline. GSP was able to demonstrate to the Lender that as a family owned, multi-generational asset, the tight spread between development cost and value was a less important metric than for a merchant builder-built building, particularly with a significant equity investment.
Rate: 1-Month LIBOR + 7.50%
Term: 28 Months
Amortization: Interest Only
Lender Fee: 1% in / 1% out
- Advisors: Gary M. Tenzer
- About Us
- Our Team
- GSP Insights
- Contact Us