Rate: Floating at LIBOR + 2.75%
LIBOR Floor: 1.25%
Amortization: Interest Only
Debt Yield In/Out: 5.5%/7.5%
Fee In/Out: 1%/0%
Cash Management: Springing
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.
Acquisition Bridge Loan for an 11-Unit Multifamily Property; 72.5% Loan to Cost; Arlington Heights Area of Los Angeles, CA
October 16, 2019
George Smith Partners arranged acquisition bridge financing for a value-add multifamily property in the Arlington Heights Neighborhood of Los Angeles, California. The 11-unit, 1960’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. Sized to 72.5% of total project cost, the loan includes 100% of future funding for tenant buyouts, a full gut renovation of unit interiors and an exterior upgrade.
The two-year bridge loan is interest only and floats at a rate of Prime plus 0.50% (5.75% today) with no floor rate, which is important in a declining interest rate environment. The loan carries no prepayment penalty, and interest is not charged on the holdback until funds are drawn. The lender fee was negotiated down to 0.5%.
Rate: Prime + 0.5%
Term: 2 Years
Amortization: Interest Only
LTC: 72.5%, including 100% of future funding
Prepayment Penalty: None
Recourse: Full Recourse
Lender Fee: 0.5%
- Advisors: Zachary Streit
$3,350,000 Bridge Loan for Purchase of 13-Unit Multifamily Property; 70% LTC; LIBOR+3.65%; Los Angeles, CA
October 16, 2019
George Smith Partners secured $3,350,000 in proceeds for the purchase of a 13-unit multifamily property located in an infill area of Los Angeles. The loan is structured as $1,963,000 at closing and $1,387,000 in holdbacks for capital expenditures and interest reserves. Six of the thirteen units were vacant at close. The fully funded loan represents 70% of the project capitalization.
The Sponsor requested a loan with both low pricing and non-recourse execution. Several challenges were encountered in meeting both goals. The small size of the loan ruled out almost all debt fund lenders, who typically seek financings larger than $10,000,000. While banks offered rates in the 5% range, they required the Sponsor to sign full recourse. Private money lenders quoted the deal with prohibitive interest rates above 8.0%.
The selected Capital Provider was the only one to provide non-recourse execution with a rate in the 5’s. The loan did not stipulate a required debt yield based on the stabilized cash flow. Additionally, the Lender released additional money at closing for expenses the Buyer incurred while in escrow. This amount totaled $260,000 in reimbursements for soft costs. The loan closed about 45 days from the signed application.
$46,000,000 Non-Recourse Acquisition & Renovation Financing a 4-Property Apartment Portfolio in the DFW Metroplex
February 13, 2019
George Smith Partners successfully arranged $46,000,000 of non-recourse, bridge financing to acquire and renovate a 4-property multifamily portfolio, consisting of 692-units, in the Dallas-Fort Worth Metroplex. Although the Properties were well occupied (97%), rents were below market because the Seller self-managed and the Property lacked recent common area renovations. The units were well maintained but dated and will benefit from Sponsors renovation plan.
This financing was unique because it had four different multifamily properties within one single portfolio. While there were efficiencies in working with one lender, each property was evaluated on its own merits and diligence had to be collected accordingly. We marketed the attributes of each Property and the sub-markets. Two of the properties are located in Irving, one in Grand Prairie and one near Fort Worth. Each market has different economic demand drivers (example: Irving is home to several major corporate headquarters including Exxon and McKeeson). Moreover, the Lender required an minimum capital investment of $6000 per unit (slightly higher than the Sponsor’s original budget) and GSP worked with the Lender to coordinate the information for securitization. There was a timing aspect in order to securitize the portfolio properly.
George Smith Partners worked with the Sponsor to increase their renovation budget and worked with the Lender to increase leverage accordingly. This retained the Sponsors original equity participation and should result in better returns. We closed the four loans nearly simultaneously (3 loans closed on a single day).
October 10, 2018
George Smith Partners secured $28,700,000 in proceeds for the acquisition of a 254-unit multifamily property in Boise, Idaho. While near full occupancy at close, the Property has dated interiors and common areas, as well as some deferred maintenance. A capital budget was drafted by our Sponsor for unit upgrades at lease-turn as well as common area improvements. Proceeds are structured with $25,500,000 for the initial funding plus an additional $3,200,000 for capital improvements. Floating at 30 day LIBOR plus 3.0%, the two-year term will be paid current, monthly out of cash flow and does not carry a pre-payment penalty. An earn-out for an additional $2,300,000 was structured once the Subject Property achieves an 8.5% debt yield.
Challenges and Solutions:
The Sponsor was in a 1031 exchange and needed to close quickly as their exchange provided a narrow window to close. While the going in cap rate provided meaningful yield Day 1, GSP focused their marketing efforts on the Sponsor’s proven track record to execute on their previous deals.
Several capital providers passed on the deal due to the fact Boise is not a top MSA by population, even though it was recently named as America’s fastest growing city by Forbes Magazine. Certainty of execution was required for this short acquisition escrow, and the need to identify a capital provider knowledgeable with the Boise market was paramount in avoiding educational “ramp-up” delays so that escrow would fund timely.
GSP vetted this location and confirmed market knowledge with loan decision makers prior to the issuance of an application. The loan closed within 40 days of GSP’s engagement on the deal.