$12,083,000 Non-Recourse Cash-Out Agency Refinance for Multifamily Property; Western States

Overview:

George Smith Partners secured $1,400,000 to refinance a stabilized multifamily building in Silver Lake, CA. The Property, which was built by the Sponsor in 1991, is 100% occupied. The Sponsor has owned and managed the building for over 25 years, but this is currently the only asset in his portfolio. Refinancing provided the ability to achieve a lower interest rate and return equity to increase his liquidity position. The non-recourse financing carries a fixed interest rate of 4.05% for 5 years.

Challenges:

The Sponsor’s lack of real estate experience and non-third-party property management deterred some capital providers from offering non-recourse financing. The Sponsor also had limited pre-closing liquidity which made it difficult to qualify for the most attractive rates. Lastly, the eventual lender required a 6-month interest reserve due to recent uncertainty surrounding the multifamily market.

Solution:

Even though the Sponsor has limited real estate exposure, GSP was able to highlight the strong historical occupancy that the Sponsor has been able to maintain while self-managing the subject property for over two decades. GSP identified a lender that only required liquidity equal to 5% of the loan amount to qualify for their non-recourse program. The interest reserve was structured as pre-paid interest that goes directly to pay the first six months of principal and interest payments. This avoids having a held-back reserve that would only release upon hitting certain covenants in the future.