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
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.
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.
May 27, 2020
George Smith Partners placed $16,300,000 in cash out refinancing for a recently stabilized for-rent SFR development. The financing includes seven years of interest only, which will maximize cash flow for an asset located in one of the fastest growing markets in the United States. The Project is a key asset for the Sponsorship group which operates over 2,500 units throughout the mountain states and securing a low rate, higher leverage, take-out loan was an essential part of the long-term strategy of the company. GSP utilized our relationships to close the transaction in three weeks from a signed application.
During the COVID-19 era we have seen significant changes to underwriting standards in comparison to 2019. These new requirements presented an underwriting challenge for the recently stabilized project as collections were increasing throughout 2020. GSP was able to demonstrate the Sponsors overall portfolio performance and three months stabilized occupancy to achieve maximum proceeds.
May 20, 2020
George Smith Partners secured $1,690,000 in Freddie Mac permanent financing for the acquisition of a stabilized 72-unit multifamily property located in Killeen, Texas. The Property is located four miles southeast of Fort Hood, the largest active-duty armored post in the U.S. military, occupying more than 218,000 acres of land in Bell and Coryell Counties.
As GSP went into application, the world was entering into the COVID-19 pandemic. Most lenders had either stopped lending or become much more cautious. Most agency lenders require Borrowers to have a track record with multiple projects before they will be considered for a Freddie Mac or Fannie Mae loan. In this case, the Sponosr was a first-time agency borrower. To make it even more challenging, the Property was in a small market with a high concentration of military personnel and the Sponsor required the ability to have prepayment flexibility.
GSP used its relationship with a capital provider who closed multiple loans with our firm. GSP recently closed a loan in a similar small market and we were confident that they would understand the demographics and market characteristics. For this type of financing, the Lender’s typical structure is to offer a 10-year term with Yield Maintenance. Thanks to GSP’s long-standing relationship with this Lender, we were able to secure an attractive rate, high leverage, and a step-down prepayment of 3,1,0,0,0 on a 5-year term. The new capital allows the Sponsor to expand their Texas Multi-Family portfolio.
May 13, 2020
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.
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.
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.
Rate: 4.05% Fixed
Term: 5 Years
Amortization: 30 Years
Prepayment: 1.75% for Years 1-3, 1.00% for Years 4-5
Loan Fee: Par
- Advisors: Patrick O’Donnell
May 6, 2020
George Smith Partners placed a $5,575,000 acquisition loan for the purchase of a 38-unit multifamily unit located in the Los Angeles MSA. The loan has a rate of 3.6% for a 7-year term and includes three years of Interest Only payments. The term sheet was signed shortly before the COVID-19 crisis and ensuing economic volatility. Despite these conditions, the original rate and leverage was kept intact.
The Property has several vacant units which represented an opportunity for our Sponsor to add value. The Capital Provider was able to underwrite the income on these units to post-renovation market rents. Market comparable data was used to support the buyer’s conservative rent assumptions. Additionally, the Capital Provider used a market vacancy factor and proposed to withhold 12 months of Principal and Interest reserves at loan closing. GSP pointed out that the loan had IO payments during the first 3 years. After discussion, the reserve was changed to 12 months of interest payments only. The loan closed in less than 60 days.
$12,933,000 Permanent Loan to Refinance Existing Construction Debt for a Recently Completed 21-Unit Multifamily Property; 65% LTV; 2.92% Fixed, 1.35 DSCR; Los Angeles, CA
April 22, 2020
George Smith Partners secured $12,933,000 in proceeds for a recently stabilized 21-unit multifamily building located in the Pico Robertson neighborhood of Los Angeles, CA. The non-recourse, par, permanent Fannie Mae loan was utilized to refinance the existing bank construction debt in the amount of ~$9.45M and return equity to the ownership. The loan represented 88% of cost and carries a 10-year term with 10-years of interest only payments. The loan is secured by a Class A five-story mid-rise multifamily building comprised of four 2-bedroom units and seventeen 3-bedroom units. Amenities at the Subject Property include controlled access entry and parking, an elevator, rooftop deck, and private balconies. The loan was placed into application prior to major Covid-19 concerns thus no index floor was contemplated. GSP worked with the Lender to underwrite revenue to a trailing one month of actual collections carefully navigating the waiver process so as not to trigger new business which would have resulted in an index significantly wider than the actual 10-year Treasury rate. Lastly, a six-month reserve for principal, interest, taxes, insurance, and reserves was held back at closing in the event of a shortfall, enabling the Lender to fund during the global pandemic. The reserve will be released within one year if the Subject Property maintains the minimum 1.35x DSCR for the same period.
$19,100,000 Construction Financing to 92.5% LTC on a 111-Unit, Class-A Apartment Community; St. Louis City, Missouri
April 8, 2020
George Smith Partners successfully placed $19,100,000 in construction financing, which funded 92.5% of the total project cost for the construction of a 111-unit second phase of a larger mixed-use multifamily and retail project located in the trendy St. Louis City neighborhood of The Grove. The financing structure included a senior loan to 85% LTC and a preferred equity investment with last-dollar exposure to 92.5% of total project cost. The preferred equity investment is non-recourse and the senior loan provides for only a 50% repayment guarantee that burns down to 25% upon certificate of occupancy. Additionally, the Lender and preferred equity investor gave credit for a lift in land value above the Borrower’s actual cost due to the Sponsor having owned the land since 2016 and it being the second phase of a larger project. GSP leveraged its expertise of the St. Louis market, long-standing lender relationships, and capital markets creativity to achieve the Sponsors goals of minimizing cash equity invested into the project due to how much value is being created in this phase of the project.
Term: Twenty-four-month initial term with one, 12-month extension option
Amortization: Interest only
Prepayment: Nine-months minimum interest
Guaranty: 50% repayment guarantee that burns down to 25% repayment guarantee upon certificate of occupancy (on senior loan only; does not apply to the non-recourse preferred equity investment)