$26,500,000 Multifamily Non-Recourse Refinance & Cash Neutral Purchase

Rate: One month LIBOR + 4.25%
Term: 3 Years with two 1 Year Extension
Amortization: Interest Only
Prepayment Penalty: 15 months
LTV: 80%
LTC: 80%
Origination Fee: 0.825%
Exit Fee: 0.25%
DCR: 1.0
Guaranty: Non-Recourse

Transaction Description
George Smith Partners secured $26,500,000 in proceeds for the refinance of a 163-unit mixed-use multifamily and retail property in Hollywood, CA along with the simultaneous purchase of the adjacent 9-unit multifamily rental. With the merging of the two assets, the two parcels would be combined and managed as one to establish economies of scale. The non-recourse loan floats at 30 day LIBOR + 4.25% for a period of three years; and offers two additional one year extensions. Sized to 80% of value and 80% of cost, the loan was structured with $24,600,000 in initial funding and $1,900,000 in hold-backs for capital renovations. No additional cash equity was required for the new acquisition of the adjacent 9-units – this transaction was cash neutral to the Borrower. Funding occurred in 30 days from the date of the term sheet.

A number of challenges were encountered when discussing the transaction with capital sources. Our Sponsor had acquired the 163-unit property two years prior with bridge financing. Several lenders were hesitant to repay this loan with another bridge loan, yet offer the requested loan proceeds for the new acquisition. The off-market acquisition was problematic to comp out for the appraiser as a stand-alone execution. An earthquake risk assessment (PML) report mandated the purchase of earthquake coverage for the new purchase. A tight timing parameter on the Purchase & Sale Agreement mandated a quick response.

GSP documented the success of the current operations and the Sponsor’s ability to dramatically improve the net cash flow on the larger 163-unit property since that acquisition. This proven track record convinced our capital provider of the merits and future upside potential to support the replacement of the current bridge debt with a new bridge loan. A detailed operating budget post-merger sharing common space and amenities and reduced per-unit operating expenses allowed the appraiser to substantiate his valuation of both parcels. Capital improvement funds were reserved and allocated to complete an earthquake retrofit. Our Sponsor was granted one year to complete the retrofit to avoid the expensive cost of the insurance. Earthquake coverage was not a condition to fund. An all-hands expedited process facilitated the 30-day close requirement of the Purchase & Sale Agreement.


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