September 2, 2020
George Smith Partners arranged $3,183,000 of senior and mezzanine financing for the acquisition of a 6-unit multifamily building located in Los Angeles, CA. The combined debt was sized to 90% of purchase price. The Property was purchased with the intention of future development. The proposed project would add more units to the supply-constrained submarket. The senior loan was sized to 60% of purchase and carries a 7.50% fixed interest rate. The mezzanine financing provided the remainder (up to 90%) and is priced at 12.00%. The financings were closed within 12 days of the term sheets being signed.
Term: 12 Months
Amortization: Interest Only
Loan Fee: 1.00%
Prepayment Penalty: None
Term: 12 Months
Amortization: Interest Only
LTV: Up to 90%
Loan Fee: 3.00%
Prepayment Penalty: None
August 26, 2020
George Smith Partners arranged $2,950,000 in permanent financing for a 12-unit multifamily property located in West Hollywood, California. In July of 2019 GSP arranged the acquisition financing for the Sponsor who now retained us to refinance the 85% bridge loan. Even with the current economic uncertainty, GSP was able to increase the loan size while dramatically decreasing the interest cost. GSP obtained a fixed rate of 3.70% for the first 5 years which allowed the Sponsor to recoup some of the capital invested in the rehab. This was particularly difficult to accomplish in light of the previous high leveraged loan.
With the COVID-19 global pandemic and uncertainty in the market, it was critical to select a capital provider who could provide certainty of execution. Borrowing costs are on the rise as lenders ratchet up their credit standards. With the current crisis, lenders were 100% focused on rent collections and overwhelmed with new financing requests as several other lenders pulled out of the market.
GSP selected a capital provider that we have a strong relationship with and have closed numerous financings with. We knew the loan officer would stay focused on the need to close on time and keep the agreed-upon rate and proceeds through the completion of the loan. Because GSP is in the debt market every day, we were able to ensure that the capital provider was truly closing deals and meeting deadlines. GSP’s experience working with appraisers, inspectors and title/escrow during the COVID-19 pandemic was critical to getting this transaction completed. It is now common during the COVID-19 pandemic that Capital Providers require a 12-month interest reserve. Due to our strong relationship with the selected Capital Provider, we were able to negotiate that those funds be applied to the first 12 months of the loan payments.
$26,000,000 Bridge Loan for a 65-unit New Multifamily Property, 100% LTC, No DCR Test; Los Angeles, CA
August 19, 2020
George Smith Partners secured $26,000,000 in proceeds for a bridge loan refinance of a 65-unit multifamily property located in Los Angeles, CA. The loan is floating at LIBOR + 5.45% with a 1.0% LIBOR floor. The Lender provided proceeds of 75% of appraised value, 100% of cost, and did not require any Debt Coverage Ratio test on underwritten cash flow.
The Property was newly constructed and began lease-up towards the end of last year. In early 2020, the COVID-19 pandemic began, and the State issued a safer-at-home directive. As a result, leasing halted for several months with the Property at 60% occupancy. Since the in-place loan was coming due, the Borrower required a bridge loan to provide additional time to reach stabilization.
When initially discussing the transaction with lenders in April, many capital providers were out of the market entirely. Those that quoted the deal provided proceeds of 65% LTV and interest rates around 8%, but these terms did not make economic sense for the Borrower. As the capital markets improved, GSP continued to discuss the transaction with lenders. In June, the selected lender entered the market with a new market-leading bridge loan program. The team quickly signed up the transaction and the loan closed in just 35 days.
August 12, 2020
George Smith Partners placed a $9,900,000 loan for the refinance of a 41-unit apartment portfolio in Los Angeles, CA. The loan is fixed at 3.85% for five years with full term interest-only payments. The term sheet was signed shortly before the COVID-19 crisis and ensuing economic volatility. Despite these conditions, the original rate and leverage were kept intact.
GSP previously sourced the acquisition bridge financing two years ago. Although the Sponsor successfully completed their value-add business plan, a number of unique challenges were encountered when closing the refinance. Shortly after the Borrower signed the term sheet, the Lender put their entire pipeline of loans on hold due to the COVID-19 pandemic. When they resumed processing the loan, they initially offered a substantial retrade. GSP was able to leverage our longstanding relationship with the Lender to maintain terms very close to the original application. The Lender also agreed to waive their loan processing fee and the cost of all third party reports. Some of the units at the Property were extremely large and the Sponsor had modified them to create a den space. As a result, a number of these renovated units were able to achieve higher rents, but it was difficult to find market comparable data. GSP obtained the necessary data and the
Lender was able to support their underwritten net cash flow.
The Lender reserved 12 months of interest only payments at loan closing, a standard condition in today’s market. However, the reserve will be used to make the loan payments and released after 6 months if certain financial conditions are met.
August 5, 2020
George Smith Partners arranged $4,300,000 in acquisition bridge financing for the purchase and reposition of an 18-unit multifamily property located in Long Beach, CA. The Sponsor put the Property under contract during the COVID-19 pandemic. The Property has several vacant units which represents an opportunity for the Sponsor to immediately add value and commence their value-add business plan.
The loan includes future funding for an extensive renovation of unit interiors and an exterior upgrade. The three-year bridge loan is interest only for the first 18 months and carries a floating rate of Prime + 0.50% with a 4.00% floor. Interest is not charged on the holdback until funds are drawn. The lender fee was limited to a 0.50% origination fee with no exit fee. The loan structure has no prepayment penalty, providing the Sponsor with ultimate flexibility.
July 29, 2020
George Smith Partners placed a $5,891,700 recourse loan for the refinance and recapitalization of an approved mixed-use conversion back to 100% multifamily use. The Sponsor acquired the mixed-use office and multifamily project in early 2019. They negotiated the early termination of several long-term office leases and obtained approvals to convert the entire Property back to multifamily. The Sponsor will add kitchens to the office units and converted a large multi-story penthouse unit with ocean views into smaller units increasing the unit count to 23. Soft demolition began in early 2020 with insufficient funds available in the existing acquisition/bridge loan to complete the revised business plan.
GSP placed the original acquisition/bridge loan. Even though the current loan went under application at the start of the COVID-19 pandemic, the only delay was as a result of the appraisal process. The value and the loan were not negatively impacted by the change in market conditions due to the COVID-19 pandemic. GSP identified a bank lender who underwrote to the new business plan and was able to provide capital at less than half of the previous loan cost while providing an additional 40% in proceeds. The bridge loan has an 18-month term at Prime + 0.75%, interest only, with the ability to convert to a 5-year term.
Rate: Prime + 0.75% with a 4% Floor
Term: 18 months
Recourse: Full Recourse
Amortization: Interest only
Prepayment: None during construction period
- Advisors: Alina Mardesich
$62,750,000 Non-Recourse, Bridge Financing for a New 253-Unit, Class A, Mixed-Use Development; Longmont, CO
July 22, 2020
George Smith Partners arranged $62,750,000 in non-recourse, bridge financing on a new construction, mixed-use property with 253 apartment units above 10,000 SF of retail in Longmont, CO—approximately 20 minutes northeast of Boulder. Despite delivering in the early stages of a global pandemic and statewide stay-at-home order, the building has maintained relatively robust lease-up velocity through unconventional marketing methods such as virtual touring. Amid such unprecedented market uncertainty, GSP successfully engaged a newly established debt fund to facilitate a cash-neutral, non-recourse refinance of the project’s maturing high-leverage construction debt, which could not be extended. The 75% loan-to-value bridge facility is priced at L+500 with a 36-month term and two 12-month extension options.
Permanent Multifamily Financing Secured During COVID-19 Pandemic, 3.07% Fixed for 5 Years; Los Angeles, CA
July 15, 2020
George Smith Partners arranged $2,600,000 in permanent financing for the refinance of a stabilized 8-unit, multifamily property in Los Angeles, California. The Sponsor acquired the Property a few years ago and was looking to lower their rate as they finished completion of a light renovation. As the environment was changing drastically day to day with the COVID-19 pandemic, GSP identified a Capital Provider offering fantastic terms. There were no holdbacks, no deposits were required to be held at their branch and provided a flexible prepayment penalty structure that allowed the Sponsor plenty of options during these challenging times.
Term: 5 Years Fixed
Amortization: 30 Years
Prepayment Penalty: 2, 1, 0
Lender Fee: None
Reserve Account: None
Deposits Required: None
- Advisors: Reuven Risch
$8,600,000 Cash-Out Refinance of a 2-Property Multifamily Portfolio During the COVID Pandemic; Los Angeles, CA
July 8, 2020
George Smith Partners was retained to develop and implement a strategy to refinance a 5-Property $50,000,000 multifamily portfolio. GSP divided the properties between two capital providers in order to provide maximum flexibility to the Sponsor. The second part of the portfolio involved obtaining a 70% LTV permanent loan of $8,600,000 to provide the Sponsor with over $1,500,000 in cash-out capital to purchase additional properties during a changing market and maintain a strong cash position. GSP obtained a fixed interest only rate of 3.95% for the first 5 years.
With the COVID-19 global pandemic and uncertainty in the market, it was critical to select a capital provider who could successfully close. Borrowing costs are on the rise as lenders ratchet up their credit standards. The proceeds for this transaction were targeted for the acquisition of an additional asset which had a firm closing date and a large non-refundable deposit. Any delays would have been very costly. With the current crisis, lenders were 100% focused on rent collections and overwhelmed with new financing requests as several other lenders pulled out of the market as well as forbearance requests from their current borrowers. In addition to the usual due diligence requirements, the Lender required much more information. There were complex issues around appraisals and inspections that required lots of hand-holding.
GSP selected a capital provider that we have a strong relationship with and has closed numerous loans for us. We knew the loan officer would stay focused on the need to close on time and keep the agreed to rate and proceeds throughout the loan process. Because GSP is in the debt market every day, we were able to ensure that the capital provider was truly closing deals and meeting deadlines. Because of the market disruption, borrowing rates jumped by over 100 basis points overnight. We were able to lock the 5-year interest only rate at 3.95%, the following day, rates jumped to 4.75%. It was clear that the Lender was mindful of their reputation with GSP and didn’t want to get a reputation of crazy rate increases or abandoning their customers when they are needed the most. GSP’s experience working with appraisers, inspectors and title/escrow during the COVID period was critical to getting this transaction completed. The loan closed on time and the Sponsor was able to utilize the cash-out to purchase another project. As is now common during the COVID crisis, the Capital Provider required a 12-month interest reserve. We were able to convince the Capital Provider to apply those funds to the first 12 months of the loan payments.
$24,300,000 Cash-Out Refinance of a 3-Property Multifamily Portfolio During the COVID Pandemic; Los Angeles, CA
July 1, 2020
George Smith Partners successfully refinanced a 3-Property stabilized multifamily portfolio with cash-out during the COVID stay at home order in Los Angeles.
The new capitalization provided the Sponsor with over $3,000,000 in cash-out to purchase additional properties during a changing market and maintain a strong cash position. GSP was able to obtain of 70% LTV with a starting fixed interest rate of 3.4% for the first 5 years. The loan is for 30 years with indexed changes every 5 years.
As the world entered into a global pandemic, capital providers were unsure about the future of the real estate market in general and specifically the multifamily market. Within two weeks of application over half of the multifamily lenders canceled all their deals and exited the market. Because of this uncertainty, many capital providers pulled back. When the Federal Reserve cuts interest rates they are impacting the index part of the rates, but the risk spread is determined by factors like supply and demand as well as overall risk. Even when the Federal Reserve cuts treasury rates the overall rate to a borrower can increase on assets like commercial real estate. At GSP our role is to manage the entire financing process including managing the expectations of both the Sponsor and Capital Provider. When our clients hear the Federal Reserve is cutting rates, they naturally expect rates to fall However, because of the huge amount of new risk caused by the COVID-19 crisis, rates for commercial real estate actually went up over 1%.
GSP opted for a Capital Provider with a slightly higher rate. We had a strong relationship with this Capital Provider and felt that we had a better chance of a successful closing. One week after going into application with our chosen capital provider, the Lender we had passed on pulled out of the market. GSP pushed forward with our client keeping focus on closing the transaction. As treasury rates fell sharply, our capital provider warned us to lock if we wanted to maintain our application rate. Following our advice, the Sponsor locked at 3.4%, our application rate. The following day, rates jumped over 1%, with rates going into the high 4% range. The closing process during COVID is more difficult with Capital Providers wanting to verify every dollar of collection and reduce risk as much as possible. As capital providers started seeing borrowers unable to pay their rent, almost every lender implemented upfront reserves. The overall due diligence process was tougher than we had seen in the past. The loan closed at the agreed rate and proceeds. The Lender required a 12-month interest reserve and we were able to convince the Lender to apply those funds to the first 12 months of the loan payments. This is becoming a common practice for almost all lenders since the COVID Crisis.
Cash Out Refinance for 14 Unit Renovated Multifamily Property; 3.5% Fixed; Bank Financing Closed During Covid-19 Pandemic; Los Angeles, CA
June 24, 2020
George Smith Partners secured a first trust deed on an unencumbered 14-unit Los Angeles multifamily property. The loan is fixed at a rate of 3.5% for seven years and has five years of Interest Only payments. The Sponsor acquired the Property in an all-cash transaction 12 months ago and completed a full gut renovation. Unit interiors were updated to a high level of finish with an investment of $27,600/per unit, and the Property was leased up to 100% occupancy. The loan was placed into application with a California based bank about one week before the stay-at-home order was implemented. Despite the resulting economic uncertainty, the Sponsor was able to maintain collections close to 100%. As a result, the Capital Provider made one small change to the original term sheet, adding a twelve-month payment reserve. The payment reserve is based off Interest Only payments and it will be used to make the interest payment on the loan. In order to cover this reserve, the Capital Provider was able to increase loan proceeds from the amount in the original application. As a result, our Sponsor received the same amount of cash out that was originally applied for.
Rate: 3.5% fixed for 7 years, then floating at 6M LIBOR + 2.35%
Term: 30 years
Amortization: 5 years Interest Only followed by 30-year amortization
Prepayment Penalty: 4,3,2,1,0
May 27, 2020
George Smith Partners placed $16,300,000 in cash out refinancing for a recently stabilized for-rent SFR development. The financing includes seven years of interest only, which will maximize cash flow for an asset located in one of the fastest growing markets in the United States. The Project is a key asset for the Sponsorship group which operates over 2,500 units throughout the mountain states and securing a low rate, higher leverage, take-out loan was an essential part of the long-term strategy of the company. GSP utilized our relationships to close the transaction in three weeks from a signed application.
During the COVID-19 era we have seen significant changes to underwriting standards in comparison to 2019. These new requirements presented an underwriting challenge for the recently stabilized project as collections were increasing throughout 2020. GSP was able to demonstrate the Sponsors overall portfolio performance and three months stabilized occupancy to achieve maximum proceeds.
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