Rate: 3.96% Fixed for 10 years
Term: 10 years
Amortization: Interest Only
Prepayment Penalty: Yield Maintenance
DCR: 1.55x
Guaranty: Non-Recourse
Origination Fees: Par
Transaction Description:
George Smith Partners secured $25,250,000 for the non-recourse cash-out refinance of a newly constructed, ultra-luxury 49-unit multifamily building located in Los Angeles (Brentwood). The Building is situated in one of the most sought after areas and is in close proximity to popular restaurants, bars and entertainment. The construction take-out permanent loan is fixed at 3.96% for ten years with full term interest only and has a yield maintenance prepayment penalty structure.
Challenges:
The Building was in the final lease up stage when the financing process started and final Certificate of Occupancy had not yet been delivered. The Building also contains four affordable units, which were the last units to be leased up, due to the City’s application certification process. Thus the owner did not have any seasoning on the newly leased units nor any historical operating expenses.
Solution:
GSP identified a capital source that understood the strength of the asset, location and the experience of the Sponsor (Developer). Based on these strengths, the Lender was able to underwrite to in-place income without seasoning and proforma operating expenses, which maximized loan proceeds. The Lender was able to fund once the Property was 95% leased and final Certificate of Occupancy issued. The Sponsor locked a full term interest only structure, which is advantageous to the Property’s cash flow as the new leases begin to season.
Advisors
Related Financings
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$5,060,000 Permanent 19 Unit Multifamily Acquisition Loan; 5 years Interest Only
January 24, 2018
Transaction Description:
George Smith Partners secured $5,060,000 of non-recourse acquisition debt for the purchase of a 19-unit multifamily property in Los Angeles. The loan has interest only payments at a fixed rate of 3.92% for the first 5 years, before switching to a 30-year amortization. The lender provided non-recourse execution and a short prepayment penalty structure.Challenges:
The property is located in a prime Los Angeles location, but low tenant turnover had resulted in one third of the tenants paying less than 50% of market rent. As a result, the property was income constrained. Many lenders stressed their cash flow at a rate higher than their current note rate, resulting in limited proceeds. The seller had upgraded several units and classified the cost as an operating expense on historical P&Ls. The property had a minor deferred maintenance issue that created some uncertainty during the appraisal inspection.Solution:
GSP identified a Capital Provider that sized their proceeds at the actual note rate, rather than a stressed underwriting rate. The selected lender was also able to underwrite down to a 1.15 DCR, compared to the 1.20 constraint offered by other institutional providers. This resulted in considerably higher proceeds. Invoices were obtained for the unit upgrades which allowed the exact amount of capital expenditures to be deducted from operating expenses. It was confirmed that the deferred maintenance issue was disclosed to potential buyers during the bidding process, thus establishing that the sale price was inclusive of the cost of the repair.Rate: 3.92% fixed for 5 years; floating at 6 month LIBOR + 2.25%
Term: 30 years
Amortization: 30 years
LTC: 65%
Interest Only: 5 years
Prepayment Penalty: 3, 1
Origination Fees: Par
Guarantee: Non-Recourse- Advisors: Matthew Kirisits
