$28,000,000 Paper Lot Inventory – Land Loan, CA

Transaction Description: 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.

Challenges: 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.

Solution: 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.