Term: 10 Years
Amortization: 25 Years
Loan Recast: Allowed Twice Annually
Prepayment: None Twice Annually
Recourse: Entity level only
Lender Fee: 0.50%
George Smith Partners placed the acquisition financing of a leased fee for a Southern California condominium complex, sized to 100% of the purchase price. Our Sponsors, the Home Owners Association (HOA) owned their individual units but were subject to a ground-lease with 35 years remaining. Through the HOA, the individual homeowners were afforded a one-time purchase option to acquire the fee position and collapse the ground-lease assuming 100% participation in the acquisition. Their alternative would be to wait 35 years and lose all of their improvements to the expiring lease. Their equity interests would have zero value at that time and diminish rapidly as that lease termination date neared. Fixed at 4.50% for ten years, the loan amortized over 25 years. There is no warm body to sign repayment or carve-out guarantees. All recourse is limited to the HOA entity.
HOAs are governed by their CC&Rs and are precluded from owning any real estate. GSP effectively did not have a borrower to take title/ownership of the fee position without 100% consent from the homeowners. Assuming an accelerated amortization, any special assessment would more than double current HOA dues. Some owners have ample equity in their unit or cash on hand to cover their proration of the purchase and would seek to opt out of new financing to avoid the special assessment. A future unit buyer may choose to opt-out of the loan and pre-pay their allocation two years or more from now and again opt out of the special assessment. The Lender’s monthly mortgage payment would need to be recalculated with every pre-payment as more unit owners opted out of the special assessment cash flow used to support the monthly loan payment. The ground-lease payment currently in place did not support a $10,000,000 or any level of debt near that sale price; ie. the HOA could not just assume the ground-lease and leave it in place for the remaining 35-year term.
GSP identified a Southern California portfolio lender with an HOA lending unit. They specialize in capital improvement loans to HOAs and structure a pledge of cash flow/special assessment dues as their collateral. They do not need a recorded Deed of Trust for collateral. The acquisition was for the purchase and immediate collapse of the ground-lease. Individual unit owners would have the lease-hold designation removed from their title reports. The relatively low interest rate on the loan coupled with a 25-year amortization schedule minimized the impact to the monthly dues assessment. Unit owners on a case-by-case basis were permitted to opt out with their prorated cash allocation. The loan allows for a partial prepayment two times each year without penalty. The loan will be reamortized at that time over the remaining amortization term to lower the monthly payment as more homeowners opt out of the special assessment payment to the HOA.
Senior Vice President
Senior Vice President
February 19, 2020
George Smith Partners secured $4,650,000 in financing for the acquisition of a 28-unit multifamily property in the Highland Park area of Los Angeles. The transaction closed in just five days. The new debt on the Property is interest only and does not include prepayment penalties.
GSP was able to secure a high leverage, value-add multifamily acquisition program for our client. He now has the ability to purchase properties at a discount due to the quick close and small equity requirement. The Sponsor has the opportunity to quickly resell the Property or refinance with a rate of sub-3.75%.
The Sponsor has been able to achieve investment IRRs in excess of 200% by quickly renovating the Property and selling to long-term investors due to the high leverage and short closing.
$5,400,000 Land Acquisition and Predevelopment Financing Facility for a To-Be-Built, 150 Bed Co-Living Community; Highland Park, CA
February 19, 2020
George Smith Partners arranged a $5,400,000 financing facility for the acquisition of a 29,930 square foot vacant parking lot in the trendy Highland Park submarket of Los Angeles, CA. In addition to purchase financing, the financing facility offers good news money for predevelopment costs related to the Sponsors planned 150-unit co-living community on the site, which will be a by-right development and will take advantage of TOC Tier 1 incentives.
Co-living has emerged as a remedy to address the acute shortage of affordable housing across the country by offering tenants fully furnished, highly amenitized units with the cost of utilities, common area maintenance, and other traditional living spaces bundled into the rent. The Property is within a 5-minute walk from Highland Park’s main amenity-rich thoroughfares lined with shopping and dining destinations.
By focusing attention on land lenders who are active in the local area, GSP identified a capital provider who is familiar with the local market and also understands the importance that the co-living space will serve in the greater rental market going forward. The loan was uniquely structured to disburse approximately the balance of the down payment in addition to sponsor equity at closing, with the remaining proceeds to be reserved in a holdback feature that will cover the predevelopment soft costs in order to bring the Project to permit-ready status. The interest-only predevelopment land loan was priced at 8.50%, with a 15-month term and one 6-month extension option. The loan closed in less than 30 days from application.
February 12, 2020
George Smith Partners placed a $10,900,000 non-recourse loan for the refinance of an underperforming stabilized 50-unit multifamily community in Los Angeles. The Sponsor recently acquired the asset at approximately 50% below market from an affiliate party and GSP was able to facilitate approximately $3,000,000in cash out proceeds at closing. A portion of the loan proceeds will be used to renovate units as they become vacant in order to achieve current market rents. GSP identified a non-institutional lender who was comfortable with the cash out proceeds and who understood the history and dynamics of this non-arms-length acquisition. The non-recourse loan is fixed for 1.5 years with a 7.99% interest rate and 4.99% pay rate.
Rate: 7.99% with 4.99% pay rate
Term: 18 months
Recourse: Carve-Outs Only
Prepayment: None; no exit fee
- Advisors: Alina Mardesich
$10,500,000 Acquisition Bridge Loan For 71-Unit, Multifamily Property; Floating at LIBOR + 2.75%; Seattle, WA
January 21, 2020
George Smith Partners secured a $10,500,000 acquisition bridge loan for a 71-unit multifamily property in the greater Seattle area. The loan provides 75% LTC and floats at a rate of LIBOR + 2.75% for a 3-year term. Proceeds are structured as $8,462,000 in initial funding plus holdbacks for interest reserve and capital expenditures.
When speaking with capital providers, GSP encountered several challenges. The Property is in a submarket about 10 miles south of Downtown Seattle that has yet to experience significant redevelopment. The Seller made limited investments in the Property upkeep in recent years resulting in a significant amount of deferred maintenance. Because of this, the Property showed poorly on-site tours with prospective lenders.
The selected lender was comfortable with the strength of the Sponsorship and was able to provide 75% LTC at a competitive interest rate. Although LIBOR was about 1.75% on the day of close, GSP negotiated a LIBOR floor of 1.25%. This could be very advantageous for the borrower since the forward LIBOR curve is downward sloping. In order to prove out the proforma market rents, GSP provided examples of several other properties the Sponsor had successfully completed in the area. The Sponsor also provided a very detailed exterior renovation budget that will enhance the appearance and amenities of the Property. The Lender also had true springing cash management. This means that the Borrower did not have to open an account at close and retains full control over the cash flow. The Lender allowed pre-negotiated loan docs that the Borrower had used for a similar transaction. The loan closed in about 45 days even with the end of year holidays.
80% Loan to Cost, Non-Recourse Acquisition Bridge Financing for a 20 Unit Multifamily Property in South Los Angeles; Closed in 30 Days with No Lender Legal
January 8, 2020
George Smith Partners arranged $2,300,000 in non-recourse acquisition bridge financing for a value-add multifamily property in the South Los Angeles. The 20 unit, 1920’s vintage property had significant deferred maintenance and below market rents. The Sponsor’s business plan was to reposition the property, buyout tenants and release the units at market rents. The transaction carried a very short 30 day closing time frame.
Sized to 80% of total project cost, the loan includes future funding for tenant buyouts, a full gut renovation of unit interiors and an exterior upgrade. The three year bridge loan is interest only and carries a fixed interest rate of 7.25%. Interest is not charged on the hold-back until funds are drawn. The lender fee was limited to a 1% origination fee with no exit fee. The lender did not charge a legal fee and closed the transaction in 30 days from term sheet execution.
Term: 3 Years
Amortization: Interest only
LTC: 80%, including future funding
Guaranty: Non Recourse
Lender Fee: 1% in / no exit fee
Prepayment Penalty: 12 month interest guarantee
- Advisors: Zachary Streit
December 18, 2019
George Smith Partners arranged $25,500,000 in non-recourse bridge financing for the acquisition of a 230,000 square foot Class A office building located in the heart of Phoenix, Arizona’s Midtown District. Positioned on a heavily trafficked thoroughfare of a major professional corridor, the site benefits from its central location, proximity to Downtown Phoenix and abundance of local economic drivers. The Project, built in 1982, had been well-maintained but was running a below-market occupancy rate of 82% due to the recent expiration of a large tenant lease. This bridge facility allowed the Canadian-based Sponsor to purchase the asset and undergo a proposed renovation, bringing the design up to competitive market standards in order to successfully lease-up and stabilize the asset.
By focusing attention on sophisticated bridge lenders active in the local area, GSP identified a capital provider who understood the growth of the market. The selected Capital Provider structured around the Project’s current vacancy, recognizing the strength of the Sponsor and their ability to successfully execute on the intended business plan of value creation. The loan was structured with minimal cash management language and featured pari passu funding throughout the term. The interest only non-recourse bridge loan was priced at a spread of 350 basis points over the 30-Day LIBOR, with a three-year term and two 12-month extension options.