$12,100,000 68% Loan to Cost, Limited Recourse Construction of 45 Apartment Units in Los Angeles

Transaction Description: GSP successfully placed $12,100,000 of ground-up construction financing for a 45-unit luxury boutique amenities transit-oriented apartment development in Los Angeles. Recourse was limited to a 25% repayment guarantee; burning down to zero once a 9.10% debt yield is achieved. The senior loan was sized to 68% of total cost and priced at LIBOR + 2.65%. The three year loan equates to $269,000 per door.
Challenge: Thirty-five days before the Sponsor had a hard date to begin construction, the Sponsor’s original Lender reduced proceeds due to a low appraised stable net operating income that dropped the debt yield below the threshold stipulated at application. In order to maintain the debt yield the lender cut proceeds to a level that made the transaction unfeasible for the Sponsor.
Solution: GSP stratified the appraisal numbers into loan-to-value and debt yield conclusions, and identified a new capital provider focused on loan-to-value sizing versus debt yield sizing. The new lender accepted an 8.17% debt yield on appraised stable net operating income because they focused more on the stabilized appraised loan-to-value. The result is the Lender was able to achieve the required proceeds and close within thirty-five days and did not require a new appraisal.