Amounts: $6,125,000 & $7,773,000
Term: 10 Years, Fixed, 5-Years Interest Only
George Smith Partners successfully arranged two, 10-Year, fixed rate loans for a total of $13,898,000 on two Southern California multifamily properties.
The first loan was for $6,125,000 and was used to refinance an 18-unit multifamily property built in 1986, located in Hollywood, CA. The second loan was for $7,773,000 and was used to refinance a 26-unit multifamily property built in 1991, located in Culver City, CA.
Both properties had undergone significant renovations and upgrades within the past four years. Despite COVID-19 regulations allowing tenants to suspend rent payments, both properties have stayed fully leased throughout 2020, with all tenants continuing to pay rent
Although the properties had been previously financed with floating rate debt after undergoing their renovation programs several years ago, GSP demonstrated to the Sponsor that despite the requirement to pay a prepayment penalty on their existing financing, this refinancing would:
1) Reduce the current interest rate by approximately 135 bps
2) Increase the cash flow
3) Eliminate floating rate risk
4) Provide significant net cash-out proceeds
5) The prepayment expense is offset by the interest savings within approximately 18 months.
Both loans are fixed at 3.33% and are interest only for the first five years. The loans are not cross-collateralized, are non-recourse and sized at 70% of appraised value.
The Next Generation of Co-Living: $14,100,000, 65% LTC Construction Loan for Co-Living Project; Los Angeles, CA
October 28, 2020
Transaction Description: George Smith Partners placed the $14,100,000 construction to perm loan for an 86 micro-unit, co-living development located in an opportunity zone for an institutional sponsor and a national private equity firm. Optimized to provide a complete living experience with full in-unit accommodations on shorter term leases, the Project represents the first of its kind in the Los Angeles market. The 65% construction loan converts to a 5-year mini-perm loan fixed at 4.5%, synergizing with the Borrower’s long-term strategy and maximizes the opportunity zone benefits by eliminating future financial risks.
Challenges: The Project was heavily scrutinized due to COVID-19 and the concerns of close quarter living. Additional concerns arose from a macro level as the nation began to see an exodus from large cities. As further stress was placed on the underwritten income, the capital markets were struggling to find the last dollars needed. Additionally, many platforms had already largely paused construction lending, let alone found the risk tolerance to push leverage back to pre-lockdown levels. Finally, the Project is situated in an opportunity zone and the unique capital structure remains a relatively new concept for most lenders.
Solutions: GSP’s main objective was to secure a lender that was comfortable waiving underwritten DSCR and LTV requirements. It was also critical that the Lender would understand the intricately designed structural advantages the Project offered and how the product differentiated from everything else currently on the market. We further showcased that the Sponsor was of institutional pedigree, including their partnership with a national private equity group that specialized in opportunity zone investments and experience being among the most tenured co-living developers in the US.
October 21, 2020
George Smith Partners successfully placed permanent financing on two Tractor Supply stores in the Southeast. Due to the COVID-19 pandemic, banks required top end recourse and life insurance companies offered lower leverage with a 25-year amortization. GSP secured a capital provider that offered 10 years interest only with nominal reserves. They appreciated the strong tenant financials and sales at each location despite prevailing local economic conditions. On the day of closing, the Capital Provider tightened the spread 7 basis points because the market tightened.
October 21, 2020
GSP secured a $4,200,000 bridge loan for unentitled land in Pasadena, CA. The site is proposed to be developed into 59 luxury townhomes. The loan is fixed at 5.9% for a 12-month term with two 6-month extensions. The proceeds represent 45% of the total cost to purchase the land and entitle it.
The Sponsor acquired the Property in 2015 and has been working with the City to receive entitlements to develop the townhome plot since property acquisition. The land remains unentitled; however, the Sponsor expects to receive Ready-to-Issue (RTI) in 6 months which would provide significant value appreciation. The Sponsor had a loan coming due on the Property and needed to refinance. Given the economic situation due to the COVID-19 pandemic, many lenders were hesitant on providing financing.
GSP demonstrated that the location of the Property and market are very strong, and the specific neighborhood is undergoing a revamp. The Sponsor is an experienced Los Angeles developer who is familiar with the entitlement process and the Property is less than six months away from receiving RTI.
October 14, 2020
George Smith Partners placed a $3,000,000 line of credit collateralized by two parcels of land totaling 10 gross acres out of a three-phase, mixed-use, master planned community in Moreno Valley, California. The master development is on 19 gross acres and consists of 237 apartments and duplexes and a 22,000 square-foot office and retail center. The funds will go towards phase two horizontal work as well as utilities work for the shared road between phases one and two. This was a City mandate in order to issue a certificate of occupancy for phase one, comprised of 125 units and expected delivery by end of the year.
Development around Moreno Valley has been slow until recently and while COVID-19 did not materially impact the multifamily market in the area, many lenders were hesitant to lend there. The Sponsor is a major developer and real estate owner throughout Riverside County. GSP recently sourced refinance proceeds on other assets for the Sponsor and was able to utilize this relationship to get the same lender comfortable in providing the line of credit. GSP focused on the market demand, Sponsor’s credentials and potential repeat business for the Lender. The Sponsor was pleased with the line of credit facility as it will incur interest only when funds are drawn. The alternative land loan options would have been significantly more expensive and very difficult to achieve.
$16,100,000 Non-Recourse Acquisition Bridge Financing for a 30-Unit Trophy Multifamily Value-Added Project; West Los Angeles, CA
October 14, 2020
George Smith Partners arranged $16,100,000 in non-recourse, acquisition bridge financing on a 30-unit trophy multifamily property in West Los Angeles, California. The Property featured significant below-market rents, deferred maintenance, and physical vacancy (in part due to roommates that decided to downsize in light of COVID-19). The value-add business plan will involve a large capital expenditure budget to renovate the Property’s exterior and units, and reposition the asset utilizing a specialist property manager focused on providing family-oriented housing product with amenities like technology integration, childcare services, and community programming. The Sponsor’s expertise coupled with the Property’s trophy location created a competitive lending environment despite the ongoing pandemic. GSP ran a robust process including marketing the deal to over 70 lenders and fielding multiple lender proposals. The non-recourse financing was sized to 70% LTC and featured a rate of 1-Month Libor plus 500 basis points for a three-year term plus extensions.
October 7, 2020
George Smith Partners has secured $54,075,000 in permanent financing for a newly completed and leased, 173-unit, luxury resort-style multifamily community in the city of Ventura, CA. The loan is fixed for 15 years at 3.01% with interest-only payments for the first 7 years and with cash out above the construction loan.
When GSP was initially engaged in January the Project’s final phase had yet to receive its certificate of occupancy. While overall leasing had been strong, its current occupancy was about 60%. The state-mandated COVID-19 stay-at-home orders slowed new leasing activity throughout the Spring. When initially taking the financing proposal to market, GSP faced both the occupancy issue as well as a new-found, COVID-19, lender conservatism which negatively impacted the potential loan terms.
GSP continued to work throughout the Summer to make lenders comfortable with the resiliency of the Ventura market, the Property’s quality, as well as the Sponsor’s strength and long-term experience in the market. By late Spring the leasing program regained its pre-Coronavirus lockdown pace. With improving capital markets, GSP was able to narrow the field to the one lender that would provide the optimal combination of loan proceeds, term and rate. Upon reaching 85% leasing the Sponsor executed an early rate lock to hedge against potential swings in the Treasury prior to close. This occurred upon reaching 95% occupancy.