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

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

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.

Advisors

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