Rate: 4.05% Fixed
Term: 5 Years
Amortization: 30 Years
LTV: 62%
DSCR: 1.15x
Recourse: Non-Recourse
Prepayment: 1.75% for Years 1-3, 1.00% for Years 4-5
Loan Fee: Par
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.
Related Financings
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$12,083,000 Non-Recourse Cash-Out Agency Refinance for Multifamily Property; Western States
June 16, 2021
Transaction Description:
George Smith Partners successfully arranged the cash-out refinance of a 200+ unit multifamily property. The loan is floating at a starting rate of 2.56% and allows the Sponsor to complete a value-add strategy to increase the NOI and refinance into a permanent loan at higher proceeds in 18-24 months.
While processing the loan, GSP worked with the Lender to understand the historical cash flow which was extremely choppy due to the inconsistent rent payments during the Covid-19 pandemic. The analysis resulted in a $3,000,000 increase to the loan amount and an additional year of interest only payments.
Rate: 2.55% + SOFR
Term: 7 Years
LTV: 65%
Amortization: 3 Years Interest Only, 30 Year Am Thereafter
Prepayment: 1-Year Lockout, then 1%
Guaranty: Non-Recourse