George Smith Partners successfully financed a 50% LTV, $28,000,000 “paper lot inventory” land loan on a 59.5 acre property with 334 fully entitled lots in the city of Ventura, California. The financing was designed to provide the Sponsor flexibility in structuring the sales of phases of raw land to public homebuilders. Proceeds from the loan were also used to refinance the maturing entitlement loan and to receive a partial refund of predevelopment expenses.
Lenders have a long memory of huge losses taken on loans made on residential land prior to the Financial Crisis. Many have decided not to make new land loans, particularly for residential development, in this economic cycle; those that are lending are doing so very conservatively. With mortgage rate increases and property tax non-deductibility affecting home-ownership affordability, absorption rates and the rate of price increases have slowed, as well, in some markets which also feed lenders’ concerns.
GSP approached many traditional and non-traditional sources for financing on residential land. Terms that were proposed by commercial banks and others either supplied insufficient proceeds or had troublesome covenants. GSP arranged the financing with a lending group which included a family office and a debt fund.
May 22, 2019
George Smith Partners placed the $3,000,000 acquisition loan for the purchase of an under-developed parcel in the Fairfax District of Los Angeles. Although improved with a pair of single family residences, the contract price assumes re-entitlement for residential development. GSP identified a non-institutional lender who underwrote the business plan assuming a re-entitlement for 30 rental units. Their exit will come from the pay-off funded by a to-be-identified construction lender upon re-entitlement. The non-recourse loan was sized to 76% of the contract price and is fixed for the 18 month term at 9.9%. There is one – 6 month option to extend.
$8,700,000 Non-Recourse Predevelopment Land Loan in Los Angeles’s Hollywood Neighborhood; 14-Day Close
December 12, 2018
GSP arranged the $8,700,000 non-recourse first mortgage from a REIT to refinance a maturing bridge loan on a recently entitled retail site located along a major thoroughfare in Los Angeles. The loan provides an additional 12 months of term while the borrower evaluates whether to re-entitle the site for a mixed-use project, or move forward with in-place entitlements. Although the loan is non-recourse, the lender did not require an appraisal or other third-party reports, nor did it require an interest or carry reserve despite insufficient cash flow to cover debt service. Sized to 60% of value, the loan priced at 6.90% fixed for the 12-month loan duration.
November 16, 2016
George Smith Partners placed the refinance a three-parcel assemblage entitled for future development of 13 small-lot subdivision. A return of equity was sought to fund additional pre-development costs. GSP secured a capital provider comfortable with funding in-fill entitled land at higher leverage points: 80% of total capitalization in this situation. Our Sponsor’s strong development pipeline and proven track record added to the strength of this location/housing market. Sized to 80% of cost, the loan is fixed at 8.50% for a 12 month term with a 1.5% lender origination fee.
April 30, 2015
Transaction Description: Gary E. Mozer, Katie H. Rodd, Michael Anderson and Kyle Howerton successfully placed the $5,800,000 acquisition loan for a parcel of land that is zoned, but requires site plan approval before breaking ground. City of Los Angeles approval is estimated to take 15 months from close of escrow. This loan includes funding for entitlement, permits costs as well as an interest reserve. The site will be for a build-to-suit for a tenant that had executed their lease prior to close. The non-recourse loan is fixed at 10% for 18 months and opens to pre-payment without penalty after nine months and was sized to 75% of total capitalization.