$128,130,000 Forward Index Locked, Fixed Rate – 10 Year, I/O, First Mortgage in Downtown Los Angeles

Rate: 4.24%
Term: 10 Years, Fixed Rate
Amortization: Full Term I/O
LTV: 55%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully arranged the early index and rate lock for Orsini II, a 566-unit, institutional quality multifamily property located in Downtown Los Angeles. Orsini II is a mid-rise, over podium apartment complex comprised of five stories built over a three-level parking garage, walking distance to central downtown Los Angeles.

In 2016, GSP secured a $115,200,000 floating rate loan on the Property. Even though there were over 8 years of remaining term, due to last summer’s rapidly rising long term mortgage rates, the Sponsor decided to refinance with 10-year fixed rate debt to hedge further interest rate risk.

Challenge:

Locking in low interest rates in a rising interest rate environment and harvesting appreciated equity for future development opportunities meant that the Sponsor would have to incur pre-payment penalties on this early refinance. Additionally, the existing loan was locked-out from repayment until April 2019 which required securing a forward index lock and a deferred closing.

Solution:

While there was a 17 bps premium for the forward rate lock, GSP determined that the interest rate savings for a new 10-year loan would easily offset the early prepayment costs of the existing loan, as well as provide for the major cash out the Sponsor was seeking.

The $128,130,000, 55% LTV, fixed rate refinance funded in April 2019. The non-recourse, 10-year, interest only loan is fixed at 4.24%.

Advisors

Related Financings

  • Expand

    Acquisition Bridge Loan, 73% Loan to Cost for a 13 Unit Multifamily Property in South Los Angeles, CA

    June 12, 2019

    Transaction Description:

    George Smith Partners arranged acquisition bridge financing for a value-add multifamily property in the Westmont Neighborhood of South Los Angeles, California. The 13 unit, 1950’s vintage Property had significant deferred maintenance and below market rents. The Sponsor’s business plan was to reposition the Property and release the units at market rents. Sized to 73% of total project cost, the financing includes 100% of future funding for a full gut renovation of unit interiors and an exterior upgrade.

    The two year bridge loan is interest only and floats at Prime plus 0.5% (6.00% today) with no prepayment penalty. Interest is not charged on the holdback until funds are drawn. The Lender only required a recourse obligation from the general partner who represented 10% of the equity, even though there were limited partners representing over 25% of the equity. The lender fee was negotiated down to 0.5%.

    Rate: Prime + 0.5%
    LTC: 70% / 65%, including 100% of future funding
    Term: 2 Years
    Amortization: Interest Only
    Prepayment Penalty: None
    Recourse: Full Recourse
    Lender Fee: 0.5%

  • Expand

    Cash-Out Refinance at 4.35% Fixed for Seven Years, Non-Recourse; Downey, CA

    June 5, 2019

    Transaction Description:

    George Smith Partners secured the cash out refinance of a 15-unit stabilized multifamily property in Downey. Constructed in 1980 the Property is located in the heart of Downey, close to restaurants and retail centers. Fixed at 4.35% for seven years, the non-recourse loan floats at 6-month LIBOR + 2.25% for the remaining 23-year term. The non-recourse loan has 3 years of interest only payments and a 4,3,2,1 step down prepayment penalty.

    Rate: 4.35% Fixed for 7 years; 6 Month LIBOR + 2.25% thereafter
    Term: 30 years
    Amortization: 3 years interest only, followed by 27 years amortization
    Prepayment Penalty: 4,3,2,1
    LTV: 55%
    DCR: 1.15x
    Guarantee: Non-Recourse
    Origination Fees: Par

  • Expand

    $4,050,000 (85% LTC) Financing for the Acquisition of 3 Contiguous Parcels in Los Angeles, CA

    June 5, 2019

    Transaction Description:

    George Smith Partners secured a $4,050,000 acquisition loan for 3 contiguous multifamily buildings located in Toluca Lake (Los Angeles), CA. While there are currently 11 units on the 3 parcels, the Sponsor is in the process of designing a 57 unit multifamily project. This development is allowed “by right” but must go thru planning commission for final approvals and will utilize the density bonus regulations. The proposed building will feature a mix of 1 and 2-bedroom units and will provide more rental housing for the local community. The final project will have an affordable component, boosting the supply of units for designated for low income tenants. The Project is walking distance to the Universal City metro rail stop. Nearby employers include Universal Studios, CBS, and Warner Brothers.

    The non-recourse financing was sized to 85% of purchase price at an interest rate of 9.50% for 18 months for a 1.5% lender fee. The high leverage loan allowed the Sponsor to minimize their initial equity investment into the deal. The Sponsor plans to replace this loan with construction financing once the Project is ready to break ground. This Lender has the ability to convert some or all of their acquisition loan to a mezzanine position up to 85% of total construction cost behind the future construction loan.

    Rate: 9.50% Fixed
    LTC: 85% of Acquisition Price
    Term: 18 Months
    Amortization: Interest Only
    Prepayment Penalty: 9 Months of Minimum Interest
    Recourse: Non-Recourse
    Lender Fee: 1.5%

  • Expand

    Acquisition Bridge Financing for a 12 Unit Multifamily Property in South Los Angeles, CA; 70% LTC

    May 29, 2019

    Transaction Description:

    George Smith Partners arranged acquisition bridge financing for a value-add multifamily property in the Hyde Park Neighborhood of South Los Angeles. The 12 unit, 1940’s vintage property had significant deferred maintenance and below market rents. The Sponsor’s business plan was to reposition the Property and release the units at market rents. Sized to 70% of total project cost, the loan includes 100% of future funding for a full gut renovation of unit interiors and an exterior upgrade.

    The two year bridge loan is interest only and floats at Prime + 0.5% (6.00% today) with no prepayment penalty. Interest is not charged on the holdback until funds are drawn. The Lender also only required a recourse obligation from the General Partner, who represented only 10% of the equity, even though there were limited partners representing over 25% of the equity. The lender fee was negotiated down to 0.5%.

    Rate: Prime + 0.5%
    LTC: 70% / 65%, including 100% of future funding
    Term: 2 Years
    Amortization: Interest Only
    Prepayment Penalty: None
    Recourse: Full Recourse
    Lender Fee: 0.5%

  • Expand

    $20,000,000 3-Year Revolving Credit Facility for 88 Co-Op Units in Midtown Manhattan, New York

    May 29, 2019

    Transaction Description:

    George Smith Partners secured a $20,000,000 revolving credit facility on 88 co-op units in Manhattan. The 88 co-op units are part of a 495-unit “family legacy” property that includes 72 rent stabilized units that have been owned and operated by the Sponsor since the 1990s. The Sponsor has never forced a tenant “buy out” during their ownership history. The 3-year credit facility is based on an ‘as-is’ LTV of 50%, full recourse, interest-only at L+525 with a LIBOR floor of 2.25%, no minimum interest and no prepayment penalty. The value of the underlying collateral ‘as-vacant’ is in excess of $100,000,000 due to the strong demand in this section of Midtown Manhattan. The historical negative combined average NOI from the Project, due to the 72 rent stabilized units, resulted in an ‘as-is’ value of ~$40,000,000. The average NOI for the rent stabilized units at closing was negative $484 per unit/per month while the NOI for Market Rate Units was positive $2,600 per unit/per month.

    Challenges/Solution:

    The non-traditional security for the loan (shares in a corporation and interest in proprietary leases) combined with the historical negative cash flow were non-starters for most lenders. The operating metrics i.e., debt yield and debt service coverage ratio did not meet typical lender requirements. GSP identified a lender that understood the value of the underlying collateral, was comfortable with the historic rate of turnover and was comfortable with the natural rate of attrition. The Lender was able to underwrite the upward-trending in-place income at a starting debt yield of < 2% while making the entirety of the credit facility available to the Sponsor.

    Rate: L+525 with a LIBOR floor of 2.25%
    Term: 24+6+6 with 50bp extension fee on outstanding principal balance
    DY Requirements/Prepay Penalty: None
    Minimum Interest/Yield Maintenance: None
    LTV: None specified but between 45% – 50% is starting LTV
    Unused Line Fee: between 0.10% and 0.5% depending on line usage amortized over 24 months
    Reserve: 6-months of Interest and Maintenance Fees

  • Expand

    $8,745,000 Refinance for 61-Unit Apartment Complex in East Bay, CA

    May 15, 2019

    GSP arranged a refinance that allowed the Sponsor to take cash out and strategically position the Property for future upside. The Sponsor purchased the Property in 2011 with an existing regulatory agreement mandating 80% median rents. The agreement expires in 5 years and the 7 year loan term will allow time for stabilization. The subject Property consists of 12 one-story and two-story stucco over wood frame buildings. It features large 2, 3 and 4 bedroom 2-level townhome style units. The units attract families in a market with barriers to home affordability. Amenities include an outdoor playground and covered parking.

    Rate: 4.05%
    Term: 7 years
    Amortization: Full term interest only
    LTV: 55%
    Lender Fee: 0.50%
    Guaranty: Non-Recourse

Don't Miss a Fact,
Sign Up for FINfacts!

FINfacts is a weekly newsletter highlighting recent financings and economic insights.

Subscribe Here