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
$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.
Acquisition Permanent Financing for a Multifamily Property, Sized to 75% LTV and a 1.15x DCR; West Adams, Los Angeles, CA
December 11, 2019
George Smith Partners arranged permanent acquisition financing for a multifamily property in the West Adams submarket of Los Angeles, California. The 1960’s vintage property had significant deferred maintenance and below market rents, but the Sponsor required permanent financing from a portfolio lender in order to take advantage of today’s low interest rates. GSP sourced a regional bank that was willing to fund 75% of the purchase price with no holdback based on underwriting the in-place cash flow to a 1.15x DCR. The loan carried a five-year fixed rate of 4.00%, a ten-year term and an attractive 3-2-1 prepayment penalty. No deposits were required.
Term: 10-Year Term; 5-Year Fixed
Prepayment Penalty: 3-2-1
Lender Fee: 0.25%
- Advisors: Zachary Streit
December 4, 2019
George Smith Partners successfully arranged a $2,800,000 non-recourse, short term acquisition loan for a 4.21-acre parcel near Stevenson Ranch in the Santa Clarita Valley of California. The Sponsor needed financing in a very short timeframe. GSP was able to source a private lender who closed in three business days. The loan offers 60 days of bridge term while the Borrower seeks a construction-to-permanent solution for a fully entitled, six-building, 966-unit, climate controlled, Class-A self-storage facility expected to complete construction in late 2020. The loan is non-recourse and the Lender did not require an appraisal or other third-party reports, thanks to the low leverage and strength of the Sponsor.
High Leverage Custom Program for Quick Close Bridge Financing of Multi-Family Buildings; Los Angeles, CA
November 6, 2019
George Smith Partners arranged acquisition bridge financing for a value-add, multi-family property in Los Angeles, California. One of our more experienced multi-family owner/operators has become experienced in sourcing opportunities to quickly close on troubled multi-family properties. His ability to act quickly often allows him to become the chosen Buyer, purchasing these Properties at a large discount.
GSP worked with a local REIT to develop a program that includes a first and second mortgage of up to 85% of acquisition price. The loan is designed to provide the same surety of close as an all-cash buyer, with no appraisal needed and the ability to close as fast as 5 business days. The loan is non-recourse and has no prepayment penalty.
These loans are cheaper and easier than equity partners and allow the Sponsor to take advantage of smaller opportunities using very little cash. With less than $400,000 of equity, the Sponsor was able to purchase a $2,015,000 building. At close the Subject Property was worth close to $2,500,000, allowing the Sponsor to quickly flip the Property. This is the third time GSP has used this custom created loan program to procure financing for our client.