$21,635,000 Non-Recourse Ground-Up Construction Loan for 35 Unit Condominium to 80% of Cost

Rate: 10%
Term: 2 Years + two-6 Month Options
Loan to Cost: 80%
Fee: 1.0%
Recourse: Completion Guarantee from an Off-Shore Investor

Transaction Description
George Smith Partners placed the ground-up development loan of 35 “For Sale” Los Angeles residential units over a 2,000 square foot retail unit. Offering convenient mass-transit and surface street access to employment centers in the Valley and minutes to downtown Los Angeles, this sub-market witnessed double-digit price growth year-over-year since 2011; yet housing is still significantly constrained by availability. Walking distance to a number of “hip” restaurants, entertainment, and boutique retail has made this area a weekend destination for many Los Angelinos. Sized to 80% of total cost, the two-year term allows for two-6 month options to extend and is priced at 10% for this non-recourse debt.

Challenges
No construction had been completed in this sub-market since the residential down-turn; unit sales comparables do not exist. A significant amount of grading is necessary to create the pedestal. Our General Contractor lacked this level of grading experience. The Sponsor is not an American citizen and lacks real or liquid assets here in the U.S. Hard costs increased while under due diligence.

Solution
Recent downtown Los Angeles unit sales far outpriced our Sponsor’s proforma. The ease of downtown access and less urban density permitted our underwriter to accept out-of-market sale comps in their valuation. A sizable reserve is held by the lender until all grading is completed and the pedestal is poured. Once the subject is above-grade, funds will be released and allocated to the balance of the development. Our Sponsor’s vested interest, capital contribution, and retention of a local developer supported this request regardless of where his assets are held. GSP worked with the capital provider to increase loan proceeds in lock-step with an additional equity contribution to address increased hard costs.

Advisors

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