Rate: 30-Day LIBOR + 3.20%
Term: Two years plus three 12-month extensions
Amortization: 36 months interest only
Max Loan to Cost: 75%
Lender Fee: 1.00%
GSP arranged the $13,130,000 first mortgage on two 1960’s vintage multifamily assets in the San Fernando Valley. The National Balance Sheet Lender provided a non-recourse loan at 75% of total project cost including 100% of future CapEx funds to complete an extensive interior and exterior renovation of $45,500 per unit. Interest expense is not incurred on CapEx funds until drawn. The 30-Day LIBOR plus 3.20% coupon requires interest rate risk protection throughout the term, and in order to minimize associated sponsor cost the Lender structured the initial term as two years, with three, one-year extensions and no hurdles or fees for the first extension. Due to low going-in cash flow, the Lender structured an interest reserve to cover debt service during the peak reposition period.
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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.
$7,300,000 Acquisition Financing 5 Day Close of 48 Unit Apartment Building in the Koreatown Neighborhood of Los Angeles
August 1, 2018
George Smith Partners successfully arranged the acquisition financing of a 48 unit multifamily building located in the Koreatown neighborhood of Los Angeles. The Borrower needed a quick close loan to win the acquisition and also needed as much leverage as possible. With numerous tenants paying severely under market rent, the borrower’s business plan was to buy these tenants out and release the units at market rent. GSP ultimately worked with a senior lender and a mezzanine lender to maximize proceeds, while still closing the loan in time for the acquisition. GSP was able to push proceeds on the deal to 84% of the purchase price. The non-recourse loan has a 12 month term and a fixed blended interest rate of 8.24%. GSP additionally worked with the Lender to remove any prepayment penalty, This gave the Borrower the flexibility to refinance with permanent financing should he execute his business plan early. This is increasingly important in a rising interest rate environment.
July 25, 2018
George Smith Partners secured a $3,820,000 non-recourse permanent acquisition loan for a 44 unit multifamily property in the greater Seattle area. The loan provided 65% leverage and is fixed at a rate of 4.34% for five years. The seller had owned the property for decades and was operating with expenses much higher than a typical multifamily property. In order to maximize proceeds, GSP provided market expense data and emphasized our Sponsors’ extensive experience operating over 2,000 multifamily units. This helped provide support for expenses more in line with the market. The seller also rented units only through word of mouth and had 5 vacant units. By demonstrating the market vacancy, the lender was able to use market rents for the vacant units in order to maximize proceeds. The lender was also able to provide a short prepay period, giving the borrower flexibility to pay off the loan after just two years.
May 30, 2018
George Smith Partners secured $3,900,000 to facilitate a value add acquisition of a 28-unit multifamily building in Silver Lake. Constructed in the 1950s, this building is located near the heart of Silver Lake which houses many trendy coffee shops, restaurants, bars, and entertainment. Floating at Prime + 1.25% for five years with a 5.50% floor rate, this non-recourse loan has 12 months of interest only payments followed by a 30-year amortization. The loan has a prepayment penalty of 2% for the first two years, then open.
The subject property has many long term residents. The long term residency left the property with dozens of units at below-market rents, ultimately affecting loan proceeds. The property required a significant amount of capital improvements in order to deliver the type of product and aesthetic that the younger tenant base in the immediate area expects for newly renovated units.
GSP worked with a Lender who understood the client’s successful track record renovating and adding value to similar projects in the area. The Lender had comfort in the business plan for this project and was able to underwrite to a 1.20x DCR on the exit using proforma rents. The $30M loan provided 65% of the acquisition cost. The Lender was also able to offer non-recourse for this bridge loan.
Rate: Prime + 1.25% for 5 years; 5.50% Floor Rate
Term: 5 years
Amortization: Interest Only 12 months, then 30 YR AM thereafter
Prepayment Penalty: 2,2,0%
Origination Fees: 0.50%
March 7, 2018
George Smith Partners arranged $17,910,000 of non-recourse, acquisition bridge financing for the purchase and renovation of a 206-unit multifamily property located in the Southwest. The property, which was built in 1979, is comprised of 17 garden-style buildings with studio, 1 and 2-bedroom units. Although 97% occupied, the property suffered from lower than market rents due to both exterior and interior deferred maintenance. The Sponsor intends to capture higher rents by investing $1,800,000 to upgrade individual apartments and the property’s communal facilities. The lender was able to get comfortable with the capital expenditure budget and the projected rents due to the Sponsor’s proven track record in the submarket. Sized to 69% of total cost, the non-recourse bridge loan floats at 4.20% over 1-Month LIBOR for 3 years.
January 24, 2018
George Smith Partners secured $5,060,000 of non-recourse acquisition debt for the purchase of a 19-unit multifamily property in Los Angeles. The loan has interest only payments at a fixed rate of 3.92% for the first 5 years, before switching to a 30-year amortization. The lender provided non-recourse execution and a short prepayment penalty structure.
The property is located in a prime Los Angeles location, but low tenant turnover had resulted in one third of the tenants paying less than 50% of market rent. As a result, the property was income constrained. Many lenders stressed their cash flow at a rate higher than their current note rate, resulting in limited proceeds. The seller had upgraded several units and classified the cost as an operating expense on historical P&Ls. The property had a minor deferred maintenance issue that created some uncertainty during the appraisal inspection.
GSP identified a Capital Provider that sized their proceeds at the actual note rate, rather than a stressed underwriting rate. The selected lender was also able to underwrite down to a 1.15 DCR, compared to the 1.20 constraint offered by other institutional providers. This resulted in considerably higher proceeds. Invoices were obtained for the unit upgrades which allowed the exact amount of capital expenditures to be deducted from operating expenses. It was confirmed that the deferred maintenance issue was disclosed to potential buyers during the bidding process, thus establishing that the sale price was inclusive of the cost of the repair.